Despite the robust Q1 2024 financial reports Palantir Technologies (NYSE:PLTR) stock took a hit following its earnings report earlier this month. Overall, I believe the expectation for Palantir Technologies stock is very high, which could explain why the stock reacted the way it did.
Investors may fear the company’s inability to meet expectations. The company faces risks like market competition and geopolitical tension. AIP is remarkable for Palantir Technologies stock but not enough for the company to maintains a competitive edge.
Catalysts for Palantir Technologies Stock
One catalyst for Palantir is the expansion into the artificial technology industry by introducing the artificial intelligence platform into its product portfolio. AIP analyzes data from various sources, including streaming and structured data, by extracting and modifying it into a centralized format.
Companies can then use AIP to gain insights, collaborate on group projects, and support the decision-making process. Therefore, many investors have high expectations that AIP can be a remarkable product that helps Palantir significantly increase its sales and revenue in the commercial customer segment.
Since the launch of AIP, the company conducted over 915 boot camps in the U.S. and internationally. These bootcamps showcase AIP’s capabilities and its quick solutions compared to competitors.
These bootcamps have converted into many deals for the company. Palantir has a solid increase of 40% QoQ in the U.S. commercial revenue and 12% QoQ in the U.S. government revenue, indicating the company’s ability to generate consistent growth.
However, those growth rates probably failed to meet the investor’s expectations, which suggests the downward trajectory of Palantir Technologies stock.
Yet, AIP still has much to offer in the AI competition and could speed up Palantir’s revenue stream for FY2024. The company’s advancement in AI technology remains a solid foundation for Palantir’s products, not only AIP.
For example, Foundry platforms, which can handle massive data sets, could offer a competitive edge in the booming AI market. Palantir needs to work harder to sustain growth and prove its competitive advantage. Depending on the current product is not enough for Palantir.
Another catalyst for Palantir is a solid and strategic partnership with other big corporations, including Oracle, Veterans Affairs, and many government agencies. This partnership indicates Palantir’s credibility and enhances its long-term growth.
Palantir Technologies Stock Valuation
Palantir’s financials are doing very well. In its recent financial reports, the company presents a steady increase of 21% in its revenue QoQ. It is also the company’s sixth consecutive quarter of GAAP profitability.
The income in the U.S. commercial and government segment increased YoY by 40% and 12%, respectively. However, there is a slight decrease in the international government segment’s revenue by 9%.
Moreover, Palantir demonstrates a strong cash flow and acceleration of operating income. Overall, I believe that Palantir’s financial health is very favorable.
The cost of equity is 12.59%, the after-tax cost of debt is 0.86%, and the beta is 2.3. This high beta means that Palantir Technologies stock is highly volatile. This is mainly due to the dynamic position of Palantir within the technology and AI sector, indicating the stock has excellent risks but also potentially higher returns.
The calculated WACC is 17.3%. The terminal growth rate is 3%. Based on the model, the stock’s fair value appears to be $17.19, a 20.4% downside from its current price of $21.59.
Risk
Palantir has several risks to its business. One risk Palantir needs to manage is fierce competition in the AI industry, as many big technology companies compete for positions in this segment.
Palantir must advance and innovate to adapt to the market and justify high expectations from investors. If Palantir cannot do it, it could negatively affect the stock price and financial stability and make it hard to attract future investors.
Another risk for Palantir is geopolitical tension, which indicates a 9% revenue decline in an international government segment. As it partners with many government agencies, Palantir must ensure its data security to maintain trust and confidentiality.
The company mentioned that geopolitical tension led to some internal disagreement, which could impact the company’s operation and decisions in the market.
Conclusion
In conclusion, Palantir demonstrates a solid and steady increase in its operation.
I believe the company will have to try harder to prove and maintain its position in the current market. For now, the stock should be a sell, which could be downgraded by 20.4% to $17.19 from its current price of $21.59
On the date of publication, Michael Que did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
The researchers contributing to this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.