Palantir Technologies (NYSE: PLTR) is a stock I’ve considered a handful of times in the past couple of years. However, I’ve never added it to my ISA.
In hindsight, that’s been a mistake, as shares of the data analytics firm are up 275% in 2024!
That even blows Nvidia out of the water, though the chipmaker isn’t doing too badly itself after a 187% year-to-date rise. Both companies are benefitting massively from the artificial intelligence (AI) boom.
Is it high time I bought this AI stock? Let’s find out.
Firing on all cylinders
Palantir has many things I look for in a company. First and foremost, its growing rapidly. In Q3, revenue jumped 30% year on year to $726m, comfortably ahead of a forecast $701m.
For the first time, the firm’s adjusted free cash flow surpassed $1bn on a trailing 12-month basis, pushing its cash and equivalents to $4.6bn.
Meanwhile, net profit surged 100% to $143.5m, representing a very healthy 19.8% net margin.
CEO Alex Carp said: “We absolutely eviscerated this quarter, driven by unrelenting AI demand that won’t slow down.”
This highlights another positive, which is that the software firm is operating at the intersection of AI and big data analytics. Both are huge, complementary growth markets.
Its latest software suite, called Artificial Intelligence Platform (AIP), makes it easy for businesses to use advanced AI tools to solve problems and improve decision-making. Hundreds of businesses and government organisations have already flocked to AIP.
An emerging juggernaut
Palantir is also founder-led, which is something I like to see. Founders have the moral authority and entrepreneurial spirit to take calculated risks that can pay off handsomely. After all, they helped create the company from nothing.
Co-founder Alex Karp has been CEO since Palantir’s inception in 2003. His influence is evident in Palantir’s strategic decisions and distinctive corporate culture.
Consider this quote from Karp in the Q3 shareholder letter: “A juggernaut is emerging. This is the software century, and we intend to take the entire market.”
It’s arguably unlikely we’d hear such an uber-bullish statement from hired management. Co-founders Stephen Cohen and Peter Thiel also serve as president and chairman of the board, respectively.
Of course, founder-led companies don’t guarantee superior returns, but the ones that do succeed wildly also tend to be huge stock market winners (think Nvidia or Salesforce, for example).
Valuation concerns
Finding a high-quality company is only part of the equation though. The other piece of the puzzle is valuation, and this is why I’ve always been hesitant to buy the stock.
Basically, it’s always seemed overvalued to me, and even more so today at $64. The key valuation metrics are eye-wateringly high.
Metric
Forward price-to-sales (P/S) ratio
42
Forward price-to-free-cash-flow (P/FCF) ratio
122
Forward price-to-earnings (P/E) ratio
140
Of course, the stock could go even higher. But the risk is that corporate and government spending on AI unexpectedly slows, which could impact growth and cause a sharp sell-off.
My move
Shopify highlights the risks of buying an overvalued growth stock at the wrong time. Despite nearly tripling in value over two years, it remains 36% below its 2021 peak.
I’m going to keep Palantir on my watchlist for now. It’s one I’d like to own in future. But with the valuation so high, I’d prefer to buy other growth stocks for my portfolio right now.
The post Should I buy skyrocketing Palantir stock for my ISA in 2025? appeared first on The Motley Fool UK.
Pound coins for sale — 31 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
More reading
Should I buy Palantir stock for my ISA after a 200% gain?
Is it madness to buy Palantir shares after Q3 earnings?
Ben McPoland has positions in Shopify. The Motley Fool UK has recommended Nvidia, Salesforce, and Shopify. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
