Enthusiasm for Palantir Technologies (NYSE:PLTR) cooled during the spring, but so far this summer, the market has been red-hot for Palantir stock. Since June, shares in the AI software firm have soared from the low-$20s to the high $20s per share.
With this latest run-up in price, PLTR has climbed to an even pricer forward valuation. Shares today trader for a staggeringly-high 86.9 times forward earnings. Yet while such a rich forward multiple may give the valuation-conscious some pause, that’s not to say that now is the time to cash out of this strong-performing generative artificial intelligence play.
The market’s appetite for AI stocks keeps climbing, as demand trends for this cutting-edge technology remain favorable. Palantir is also weeks away from what could be a well-received earnings release.
Still, there’s something to keep in mind, when mulling your next decision about this stock.
Palantir Stock and its Hot Summer Rally
As you may already know, broad bullishness for AI stocks has played a significant role in Palantir’s strong stock price performance as of late. Back in April and May, a wave of fear, uncertainty and doubt about the continuation of favorable GenAI demand trends led to some volatility among AI infrastructure and software stocks.
For the past month, however, sentiment has shifted fully back to bullish. Commentary from analysts like Wedbush’s Dan Ives has, for certain, had a lot of influence in driving such a sentiment shift.
As Ives has been arguing in recent weeks, the AI growth boom seen during the first half 2024 hasn’t slowed down. This bodes well for leading companies in the sector.
Besides driving broad bullishness for AI stocks, Ives’ commentary has likely had a positive influence on the performance of Palantir stock.
As InvestorPlace’s Samuel O’Brient reported this week, Ives recently named PLTR as one of the likely winners this earnings season, thanks to the above-mentioned AI tail winds.
Although Palantir experienced a post-earnings sell-off when it last reported “beat and raise” quarterly results in May, this time the latest numbers and guidance could elicit a much more positive reaction from the market.
Palantir Earnings: ‘Buy the Rumor, Buy More on the News?”
Post-market on Aug. 5, Palantir will release results for the quarter ending June 30, 2024. Expectations have been rising, but instead of eliciting a “buy the rumor, sell the news” response from the market, next month’s earnings release could elicit a “buy the rumor, buy more on the news response” instead.
Unlike two months back, when elevated levels of FUD had the market downbeat on AI stocks, this time it’s the opposite. The latest wave of “AI mania” may have investors focusing on reasons to buy, not reasons to sell. Investors could take moderately sized positives, and run with them.
As seen in recent quarters, Palantir’s commercial customer count has been rising at a faster clip than commercial sales. During Q1 2024, commercial revenue grew 40% year-over-year, yet customer count increased by 69%. If this translates into further growth re-acceleration, this could serve as justification for a further rally.
That’s not all. Last quarter, Palantir’s government revenue increased 16% year-over-year, up from 11% during Q4 2023. If results show this segment experiencing further growth re-acceleration, thanks to factors like the rollout of Palantir’s AI defense software platform, this too could help spark the next big run-up for PLTR shares.
Don’t get us wrong. Down the road, Palantir shares may be at risk of experiencing a price correction. PLTR’s current valuation, which as we recently pointed out has been referred to as “gluttonous” by one sell-side analyst, stands to persist as near-term sentiment remains on the company’s side.
However, when (not if) bullish sentiment simmers down, a high valuation could leave shares vulnerable to a pullback. With this, you may want to wait for the next round of “FUD” before adding to a position.
Even so, if you currently hold a Palantir stock position, there’s no reason to exit a position today. Letting this winner ride could prove profitable, at least in the immediate term.
Palantir stock earns a B rating in Portfolio Grader.
— Louis Navellier and the Investor Place Research Staff
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Source: Investor Place