Palantir has change into a favourite amongst AI traders, however shares just lately tumbled following the corporate’s first-quarter earnings report.
The hype surrounding synthetic intelligence (AI) can’t be underestimated. Specifically, the shares of know-how firms soared in 2023, which helped to develop Nasdaq Composite by 43%.
Final 12 months, a small cohort of large-cap know-how firms, collectively referred to as the “Magnificent Seven,” performed a significant function in driving the markets. Nonetheless, a variety of different alternatives are rising outdoors of huge tech because the AI revolution gathers tempo.
Actions Palantir Applied sciences grew by 167% final 12 months. What’s extra, Palantir shares are up 36% this 12 months forward of its first-quarter earnings launch on Might 6.
However after the corporate’s earnings report in early Might, Palantir shares tumbled 18%.
Now’s the time to purchase the dip, or may Palantir be a falling knife? Let’s check out the inventory worth volatility and consider the corporate’s earnings report.
An in depth take a look at inventory actions
The chart beneath reveals Palantir’s inventory worth actions within the two weeks main as much as its first quarter earnings report.
PLTR information from YCharts
Whereas 11% might look like a small quantity, it is a fairly dramatic transfer in a brief time frame. To place that in perspective, all the Nasdaq has solely moved 4.6% over the identical time interval. As well as, from January 1 to Might 3, the Nasdaq rose by 7.6%.
Contemplating that Palantir inventory has outperformed the Nasdaq for the reason that begin of the 12 months in simply two weeks hints at one thing deeper.
Specifically, typically earlier than the publication of the earnings report, shares start to see some momentum. Whereas there are numerous causes for this, I might argue that this big buying and selling exercise is more often than not unwarranted.
Additionally, momentum shares typically contain threat as a result of day merchants can get out and in of positions immediately.
Picture supply: Getty Pictures.
Expectations are sky excessive
Final 12 months, the inventory market was closely influenced by the dramatic investments that know-how firms made in synthetic intelligence. In different phrases, a lot of the AI narrative has been priced into software program shares — though a lot of these firms have but to indicate a lot for his or her AI investments.
In April 2023, Palantir launched its fourth main software program product: the Palantir Synthetic Intelligence Platform (AIP). Since its launch, Palantir has generated a brand new wave of buyer acquisition, resulting in spectacular income progress.
There’s a variety of buzz round AIP, and Palantir has confirmed it could compete with the massive tech at a excessive stage. Additionally, provided that lower than 50% of Palantir’s inventory is owned by massive entities, I believe it is clear that the corporate has change into a favourite amongst retail traders.
Palantir continues to maneuver ahead in all of its companies. For the quarter ended March 31, Palantir reported a 21% year-over-year enhance in income to $634 million.
As well as, the corporate elevated its working margin from 24% within the first quarter of 2023 to 36% on the finish of the primary quarter of this 12 months. The mixture of income acceleration and speedy margin enlargement has resulted in constantly optimistic web earnings and free money stream for Palantir.
Regardless of these optimistic numbers, Palantir’s shares have fallen sharply and stay at low costs. The hype surrounding the corporate’s progress in synthetic intelligence led to a fleeting interval of elevated shopping for exercise. Nonetheless, traders’ expectations are actually at a stage that doesn’t correspond to actuality.
Frankly, Palantir’s present worth motion is displaying indicators extra like a meme inventory.
Is it a superb time to put money into Palantir inventory?
Regardless ofsome quirky inventory traits, I see many causes to put money into Palantir.
AIP has confirmed to be a brand new supply of progress for Palantir, notably within the personal sector. In the course of the first quarter, the variety of the corporate’s business clients within the US grew by 69% year-over-year. Furthermore, the corporate is making inroads with main tech firms when it comes to strategic alliances.
Palantir just lately partnered with Oracle transfer your information workloads to Oracle’s cloud infrastructure. I see this as a worthwhile supply of lead era that’s not but acknowledged in Palantir’s present outcomes.
PLTR PS Ratio information by YCharts
With a price-to-sales (P/S) ratio of 20.7, Palantir’s inventory is buying and selling at a premium to many enterprise software program friends and even a number of massive AI know-how firms. Whereas this reveals that Palantir inventory is not low cost, the developments proven within the chart above present that Palantir’s valuation multiples have change into extra normalized due to the selloff.
Regardless that Palantir inventory is a bit costly, I might nonetheless take into account shopping for the inventory. The corporate has made notable progress over the previous 12 months, and with sharp progress in gross sales and earnings, Palantir represents a singular alternative amongst AI software program firms.