In the realm of artificial intelligence (AI), Palantir Technologies (PLTR) has emerged as a captivating under $30 stock, captivating investors with its growth potential. As established tech giants like Nvidia (NVDA) and Microsoft (MSFT) bask in the AI boom, Palantir’s foray into the sector has not gone unnoticed. With a surge of 167% last year compared to the S&P 500 Index’s modest 25% return, Palantir is a rising star in the AI universe. Year-to-date, PLTR is up 36.8%, with Wall Street projecting a 49% increase in the next 12 months.

A recent strong quarter by Palantir has stirred excitement, adding to the speculation that its inclusion in the prestigious S&P 500 Index is on the horizon. Let’s delve into what sets Palantir apart and what the future holds for this dynamic growth stock.

The Resilient Business Model of Palantir

Palantir’s Artificial Intelligence Platform (AIP) has amplified its market presence since its launch in mid-2023, utilizing AI and machine learning to glean actionable insights from vast data sets. CEO Alex Karp notes that the traction gained by AIP is significantly contributing to new revenue streams and client acquisitions for Palantir, as evidenced by the addition of over 20 new customers and partners at a recent AIPCon event.

While government contracts form a substantial portion of Palantir’s revenue, diversification into sectors like defense, healthcare, finance, and manufacturing has reduced reliance on any single segment, fortifying the company against market volatility. The dichotomy between the Gotham platform for government applications and the Foundry platform for commercial use showcases Palantir’s adaptability across diverse domains.

In the latest report, government revenue rose by 11% year-over-year to $324 million in the fourth quarter alone, constituting 54% of the total revenue. Annual government revenue amounted to $1.2 billion, underpinned by contracts like the $250 million deal with the Department of Defense. The commercial segment, driving 46% of the revenue, saw a remarkable Q4 growth with a 32% increase, clocking $284 million. The U.S. commercial market showcased a stellar 70% revenue surge, reaching $131 million.

Of particular note, Palantir marked its fifth consecutive profitable quarter in Q4.

Forecasting 2024: A Strategic Outlook

Indicating a promising trajectory for the year, Palantir inked a $178.4 million contract with the U.S. Army to develop the Tactical Intelligence Targeting Access Node (TITAN) ground station system. Furthermore, a demining collaboration with Ukraine’s Ministry of Economy underscores Palantir’s global reach and varied applications.

The allure of government contracts lies in their security and longevity, offering Palantir a steady revenue stream and the opportunity to cultivate enduring client relationships. Strategic alliances with entities like CAZ Investments position Palantir favorably amid the shifting sands of the AI landscape.

PwC Collaboration to Propel Commercial Segment

As Palantir Technologies collaborates with PwC, a significant upsurge in the commercial segment is on the horizon. With optimism brewing in the U.S. commercial market, poised to expand by 40% come 2024, the stage is set for lucrative opportunities.

Promising Financial Outlook for Palantir

Noteworthy financial feats by Palantir in 2023 saw a 17% revenue increase, culminating in a robust $2.23 billion in total revenue. Looking ahead, management eyes a revenue projection ranging from $2.65 billion to $2.69 billion in 2024. Analysts foresee a substantial revenue growth of 20.4% to $2.68 billion and an earnings surge of 30.6% to $0.33 per share for fiscal year 2024.

Anticipated revenue and earnings hikes of 20.4% and 20.3%, respectively, beckon for 2025. Despite trading at 62 times forward earnings and 16 times forward sales—a statistic that some analysts flag as inflated—Palantir’s ascent seems unstoppable.

Solid Financial Fundamentals and Market Sentiment

Palantir boasted an impressive $3.7 billion in cash, cash equivalents, and short-term U.S. treasuries by the end of 2023. Additionally, the company raked in $731 million in adjusted free cash flow in 2023, with aims to reach $800 million to $1 billion this year. The recent surge in upward revisions for revenue and earnings estimates underscores the growing confidence in Palantir’s offerings and management prowess.

Wall Street’s Verdict on PLTR Stock

In recent assessments, Jefferies analyst Brent Thill maintained a “hold” rating for the stock with a $22 target price, citing concerns over valuation but applauding Palantir’s positive growth trajectory. Similarly, Citi upheld its “hold” rating for PLTR, assigning a $20 target price, buoyed by the US Army deal fueling government revenue.

Despite its stellar growth potential, Wall Street treads cautiously with Palantir, labeling it an overall “hold.” Among the 14 analysts covering PLTR, two stand by a “strong buy,” while one suggests a “moderate buy.” Six favor a “hold,” with one urging a “moderate sell,” and four analysts deeming it a “strong sell.” Even as Palantir’s shares closed above the mean target price of $20.67, the lofty $35 target signals a potential 48.9% upside in the offing.

An Excellent Growth Stock Opportunity

Investors eying a slice of the AI pie can still reap rewards by delving into small players like Palantir, trading around $24 per share. As CEO Alex Karp envisions the AIP platform to reign supreme in the industry, investors can anticipate latent benefits outweighing concerns about Palantir’s valuation. A resilient balance sheet, stellar revenue growth, and strategic alliances paint a compelling picture for potential investors. The potential inclusion in the S&P 500 could act as a catalyst, propelling the stock price north.

In spite of lingering doubts surrounding Palantir’s lofty valuation, personal conviction heralds a bright future and deems the company a sound, long-term investment.