Every time I look at the stock of Palantir Technologies (NASDAQ:PLTR)it seems to have reached a new record. The company was an early winner in the generative artificial intelligence (AI) software hype cycle. And with shares up 313% year to date as of this writing, many investors are wondering how much longer this uptrend will last.
Let's explore the pros and cons of Palantir to decide if it still has a place in your portfolio.
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Founded in 2003, Palantir can be considered an early adopter of what we know today as AI. The company specializes in data analytics, which involves processing huge volumes of information to uncover actionable insights and trends. And this technology was a precursor of major language models (LLM) behind platforms like ChatGPT.
Palantir was quick to adapt to changes in its industry. In 2023, it launched its Artificial Intelligence Platform (AIP), designed to combine LLMs with its legacy data analytics.
AIP helps customers with real-time decision-making and allows them to create personalized applications based on their data in a secure internal environment. This can be particularly useful for the military and law enforcement, as it provides operators with real-time information on threats and targets during field operations, while maintaining records of legal and regulatory compliance.
Palantir's third-quarter revenue rose 30% year-over-year to $725.5 million, helped by the rollout of its new AI-related functionality, particularly to U.S. government and commercial customers . The company is also consistently profitable, with adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) up 39% to $283.6 million, although that figure adds significant cash outflows like stock-based compensation, which totaled $142.4 million in the period.
Over the next three years, it can be assumed that Palantir will be able to maintain its current growth rate as AI technology improves. Management certainly seems optimistic, with CEO Alex Karp suggesting that organizations that fail to adopt productivity-enhancing tools like its AIP risk being left behind in what he calls a “winner-take-all economy.” wins everything.”
The company has gained high-profile customers including the Israeli and Ukrainian armed forces, both of which use its software for combat-related missions.
That said, while Palantir appears to have established trust within the defense industry, it's unclear whether the company will be able to fend off larger commercial sector rivals like Microsoft Or Snowflake, which also offer data analytics and AI software within their cloud computing ecosystems.
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