Key Points
Palantir’s earnings have soared amid the AI boom.
Customers have rushed to the company for its AI-driven software platform.
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Tech stocks, particularly those involved in artificial intelligence (AI), soared in recent years. But the past several weeks haven't been as bright. Investors have worried about AI spending levels and whether the growth opportunity would meet expectations.
And that's weighed on shares of Palantir Technologies (NASDAQ: PLTR), a company that's been establishing itself as an AI giant as this AI boom progresses. Palantir has tumbled 27% since the start of the year. Now the question is: Should you buy this tech powerhouse on the dip? Let's find out.
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The power of Palantir's software
First, it's important to consider Palantir's path so far. The company makes software that helps customers gather, analyze, and make better use of their data. This could lead to new strategies and processes or even help a customer develop new products and services -- so the results could be big. And when Palantir launched its Artificial Intelligence Platform (AIP), a system integrating the power of large language models, a few years ago, demand took off.
Palantir has been around for more than 20 years, and governments were its biggest customers in the early days. Government revenue continues to climb in the double digits, and the good news is that the commercial customer also has become a significant growth driver. In recent quarters, commercial revenue has skyrocketed.
The company has delivered significant growth, and at the same time, profit has climbed too. In fact, Palantir's Rule of 40 score of 127% shows its skill in balancing growth with profitability.
Palantir's biggest headwind
The one thing that's weighed on Palantir stock has been valuation. The stock trades for 97x forward earnings estimates. This is as other top AI stocks, such as Nvidia and Amazon, for example, trade at significantly lower levels.
PLTR PE Ratio (Forward) data by YCharts
It's important to note, though, that Nvidia and Amazon are farther along in their growth story -- they, too, once traded at higher valuations.
NVDA PE Ratio data by YCharts
And valuation measures don't take into account potential revenue a few years down the road. So if Palantir continues to grow earnings at the current rate, it could reach a more reasonable valuation a few years from now.
Considering all of this, should you buy this stock on the dip? Palantir's future looks bright, but if you're a cautious investor or a value investor, it's probably best to remain on the sidelines for now. That said, if you're a growth investor, you might see things differently. It's possible that Palantir stock may slip further, but it's impossible to time the market and get in at the lowest price.
So, if your focus is growth and you aim to hold on for the long term, now could be a great time to pick up shares of Palantir.
Should you buy stock in Palantir Technologies right now?
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Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
