Palantir is one of the cheapest AI stocks on the market in dollar terms.
Some of the most talked-about artificial intelligence (AI) stocks, such as NVIDIA either super microcomputer They are approaching $1,000, making them unaffordable for many investors who lack access to fractional shares. Fortunately, another top AI stock is under $25, and investors should consider it if they want to increase their exposure to AI without overweighting their portfolio in a single company.
Palantir Technologies (PLT -0.74%) It's a great investment in AI and can be had for less than $25. But is now the right time to buy?
Palantir's new AI product is taking the US by storm
Palantir has been in the AI โโbusiness much longer than many of its peers. As a result, he developed years of experience that others cannot replicate.
Palantir's AI product line was originally developed for government use and was deployed to receive massive data streams and provide decision makers with the best possible information to make strategic decisions in real time. Over time, this software expanded beyond government use, greatly increasing Palantir's market opportunities.
Those products deal with AI in the traditional sense, but the AI โโthat most people talk about today is different from the AI โโof yesterday. When most people mention AI now, they are discussing generative AI, the technology behind products like ChatGPT. This is a powerful branch of AI with many use cases, but integrating it into internal systems is not the easiest.
However, Palantir's AIP (Artificial Intelligence Platform) helps its customers do just that.
AIP gives developers the tools they need to integrate AI at all levels of a company and use proprietary data without fear of that information being leaked into the public domain. With tools to implement AI within a company, it has become an incredibly popular product. Chief Revenue Officer Ryan Taylor said on Palantir's fourth-quarter earnings conference call.โI have never before seen the level of enthusiasm and customer demand we are currently seeing from AIP in the US commercial sector.โ
With the rise of AIP in the US commercial sector, it is giving a considerable boost to Palantir's finances.
Palantir's business is doing well
In the fourth quarter, US business revenue increased 70% year over year to $131 million. While this is an impressive result, it still doesn't represent the majority of Palantir's revenue. Government revenue remains the largest part of Palantir's business, tipping the scales at $324 million of the $608 million total.
The US commercial doesn't even make up half of its total commercial revenue, as Palantir grossed $284 million worldwide. But, if the US commercial sector can maintain its growth rates (which should be possible due to high demand for AIP), things may change later this year.
Unlike many software companies, Palantir has placed an emphasis on running a profitable business. In each quarter of 2023, Palantir made profitsand the fourth quarter was the most profitable period so far.
PLTR profit margin (quarterly) data for Y Charts
However, this business success and improved profitability comes at a price, as Palantir stock is far from cheap from a valuation standpoint.
PLTR PE ratio (forward) data for Y Charts
Palantir trades on a sizable forward price-to-earnings (P/E) ratio, which makes sense because it's unlikely to reach peak profitability in 2024. Its price-to-sales ratio of 23 is also very expensive, especially considering Palantir's profitability counts. The overall revenue growth rate was 20% in the fourth quarter.
For Palantir to maintain that premium valuation, it must grow its government revenue and maintain U.S. business growth levels. If you can do that, then the premium will be worth it.
But if you are looking for a little exposure to the AI โโspace at a low share price, there are few stocks better than Palantir. While the stock is expensive, that's because expectations are high for Palantir to succeed. If you can maintain these fantastic results over the next three to five years, then the premium you pay today could be worth it years later due to growth.
Keith Drury has no position in any of the stocks mentioned. The Motley Fool has posts and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
