Palantir Stock Is Up 40% Year-To-Date. Where Will This AI Winner Stand By The End Of 2024?

Artificial Intelligence (AI) dominated the market in early 2024. Nvidia recently became the world’s most valuable company and is up more than 150% year-to-date (YTD). Investors are betting that AI will be a huge market opportunity as big tech players pour tens of billions into it.

Palantir Technologies (NYSE:PLTR) is one such AI company. Shares are up 40% year-to-date, with revenue growth accelerating as customers embrace its intelligent software and analytics tools. Where will this AI winner stand by the end of 2024? Let’s take a closer look and find out.

Intelligent software for defense and commercial customers

At its core, Palantir builds custom advanced analytics software. Customers range from the U.S. military and its allies (the U.S. government generated more than $250 million in revenue last quarter alone) to the private sector. Enterprises, especially larger ones, use Palantir’s tools to analyze their operations and track performance.

Recently, Palantir introduced its Artificial Intelligence Platform (AIP) to its customers. I don’t claim to be an expert on how these tools actually work, but automated intelligence that provides useful insights can be important for complex organizations.

And it looks like these tools work. Over the past 12 months, Palantir generated $2.33 billion in revenue. It has 554 clients in total, of which 427 are commercial organizations (i.e. not government agencies). This is up from just 49 commercial customers at the end of 2020.

Accelerate growth and profitability

In recent quarters, Palantir’s revenue growth has started to accelerate again. This is probably why the stock has risen so much this year; investors love the acceleration in turnover. Last quarter, revenue increased 21% year over year to $634 million, driven by 27% growth in the commercial segment. By 2023, revenue growth had fallen to around 12% year-over-year.

Profitability is shining right now, which is a good sign for the stock. Net income for the last 12 months was $300 million, which is a huge improvement from annual losses of $500 million to $1 billion a few years ago. Palantir is proving that it can grow efficiently (i.e., while generating profits), a sign of a healthy software business.

PS PLTR report data by YCharts

Where will it be at the end of 2024

Palantir is an exciting company. Revenue should continue to grow as more organizations adopt AI and software analytics. However, the stock still looks expensive, and I wouldn’t buy it in the summer of 2024. Let’s run through some numbers to show why.

The story continues

Today, Palantir has a market capitalization of $54 billion. This gives the title a drag price/sales ratio (P/S) of 24. Remember, this is a sales ratio, not a profit ratio. With an operating margin of 8%, Palantir doesn’t generate much profit for every dollar of sales. Margins are likely to increase over time, but that’s not a given.

But even with increasing margins…