Why Palantir Rallied This Week

Why Palantir Rallied This Week

Artificial Intelligence (AI) Software Stocks Play Palantir (NYSE:PLTR) rose 10.8% this week through 12 p.m. ET Thursday, according to data from S&P Global Market Intelligence.

While there hasn’t been much financial news for Palantir this week, the company did announce two contract wins. These victories appeared to justify a bullish call from Wall Street analysts on Palantir, published Monday.

Argus gets started with purchasing

Palantir is certainly off to a good start this week. On Monday, analyst Joseph Bonner of research firm Argus Research initiated coverage on the stock with a buy rating.

While Bonner acknowledges that the stock trades at a premium, he believes in differentiating and improving Palantir’s products through the integration of more layers of artificial intelligence into its software. And while the company’s past has been dominated by high-profile government clients like the Department of Defense and the CIA, Bonner sees the high-growth commercial segment as key to its buying appeal.

This makes perfect sense, since the company’s commercial revenue grew 27% last quarter, compared to 16% growth in government revenue. Palantir’s U.S. commercial revenue grew by an even greater 40%.

Overall commercial revenue nearly caught up with Palantir’s government revenue, at $299 million and $335 million, respectively, last quarter. But as the commercial segment appears poised to soon overtake the government segment, Bonner’s thesis that Palantir will become more of a commercial story appears to have some weight.

On that note, Palantir actually announced two deals this week, one commercial and one government. On Thursday, Palantir announced that Starlab Space, a U.S.-led joint venture of several international space exploration companies, had named Palantir as a commercial partner. According to the release, Starlab will use Palantir’s technology to “optimize resource allocation, mission planning and overall system performance, reducing operational costs and streamlining onboard operations for Starlab crews.”

Also Thursday, Palantir announced that it had been selected by the Advanced Research Projects Agency for Health (ARPA-H), a unit of the Department of Health and Human Services, to help the agency execute research based on big data. This is an exciting new contract as ARPA-H engages in cutting-edge biomedical and health research that is not easily accomplished by commercial, for-profit companies.

Palantir is a change-making company, but are the shares expensive?

Palantir has done a great job leveraging AI and growing its number of commercial customers while significantly improving its profitability. However, shares now trade at 215 times current earnings and even as high as 78 times. next year’s profit estimates.

At this valuation, investors are already pricing in a lot of good news, expecting the company to maintain its growth rate for many years, or even accelerate it. This is difficult to do for a company as it grows. And even if Palantir proves to be a great operator and a difference maker, investors should prepare for a potential pullback in this expensive stock at the slightest sign of disappointment.

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Billy Duberstein and/or its clients have no position in any of the stocks mentioned. The Motley Fool ranks and recommends Palantir Technologies. The Motley Fool has a disclosure policy.

Why Palantir Rallied This Week was originally published by The Motley Fool

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