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Why Palantir Rebounded This Week
Artificial Intelligence (AI) Software Stocks in Play Palantir (NYSE:PLTR) is up 10.8% this week as of 12pm ET on Thursday, according to data from S&P Global Market Intelligence.
While there hasn’t been much financial news for Palantir this week, the company has announced two contract wins. Those wins seemed to vindicate Wall Street analysts’ bullish decision on Palantir, published on Monday.
Argus starts at purchase
Palantir is certainly off to a good start this week. On Monday, analyst Joseph Bonner of sell-side research firm Argus Research initiated coverage of the stock with a buy rating.
While Bonner acknowledges that the stock trades at a hefty premium, he believes in Palantir’s product differentiation and improvement based on incorporating more layers of artificial intelligence into its software. And although the company’s past has been dominated by high-profile government clients such as the Department of Defense and the CIA, Bonner sees the high-growth commercial segment as key to his purchasing decision.
This seems to make a lot of sense, given that the company’s commercial revenues grew 27% last quarter, compared to the 16% growth in government revenues. Palantir’s U.S. commercial revenue increased even further, 40%.
Overall commercial revenue nearly matched Palantir’s government revenue, at $299 million and $335 million, respectively, last quarter. But with the commercial segment looking set to soon overtake the government segment, Bonner’s thesis that Palantir will become more of a commercial story appears to have weight.
In this sense, Palantir announced two contracts this week, one commercial and the other government. On Thursday, Palantir announced that Starlab Space, a U.S.-led joint venture between several international space exploration companies, has 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 on Thursday, Palantir announced that it has been selected by the Advanced Research Projects Agency for Healthcare (ARPA-H), a unit of the Department of Health and Human Services, to help the agency perform big data-driven research. This is a new and exciting contract as ARPA-H engages in cutting-edge biomedical and health research that is not easily undertaken by for-profit commercial ventures.
Palantir is a transformative company, but are the shares expensive?
Palantir has done an excellent job leveraging AI and expanding its number of commercial customers while dramatically improving its profitability. However, shares now trade at a whopping 215 times trailing earnings and up to 78 times earnings estimates for next year.
The story continues
With this valuation, investors are already betting on a lot of good news, predicting that the company will maintain its growth rate for many years, or even accelerate it. This is difficult to do for a company as it grows. And while Palantir is proving to be a great operator and a company that makes a difference, investors should be prepared for a potential pullback in these expensive stocks at any sign of disappointment.
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Billy Duberstein and/or its clients do not have a position in any of the shares mentioned. The Motley Fool holds positions and recommends Palantir Technologies. The motley fool has a disclosure policy.
Why Palantir Rebounded This Week was originally published by The Motley Fool