Is Palantir Stock a Buy Before 2025?

Palantir Technologies (PLTR) has seen a significant rise in its stock price, increasing by 41% since November 5. This growth places the company at the center of two significant trends in the market: the surge in generative AI and the ongoing political landscape surrounding the Trump presidency. This article will delve into the factors that could pave the way for Palantir's success or challenges leading into 2025.

AI Before It Was Trendy

While the world began to embrace artificial intelligence with the launch of OpenAI's ChatGPT in late 2022, Palantir has been working in the realm of big data analytics since its establishment in 2003. This discipline focuses on analyzing extensive datasets to identify trends, patterns, and actionable insights that can benefit organizations across various sectors.

The work that Palantir does in big data analytics can be regarded as an early step toward the development of large language models, like ChatGPT. The company rapidly integrated generative AI capabilities into its existing platforms, allowing for quicker processing and real-time insights. These advancements are particularly vital for military and law enforcement clients, enabling personnel to gain critical information about immediate threats during operations.

Palantir's AI technology is currently being utilized to aid the Ukrainian military in targeting during its conflict with Russia. Additionally, in June, the company formed a partnership with Israel to develop combat-related technologies.

The Trump Factor

Palantir's business model, which operates at high stakes, makes it an attractive subject for market speculation and hype. The company's stock performance has seemingly accelerated following Donald Trump's election victory, leading to increased expectations from investors who view the new administration as a potential growth driver.

In the third quarter, Palantir reported revenue of $320 million from U.S. government clients, representing approximately 44% of its total sales, which include contracts with the Department of Defense and the Department of Homeland Security. During Trump's previous term, Palantir was significantly involved in immigration policy, particularly with the Immigration and Customs Enforcement (ICE) agency, where it assisted with deportation efforts. Trump’s return to political prominence could lead to expanded initiatives in this area, though the actual implications for Palantir remain uncertain.

Notably, the ICE has been exploring options to replace its existing software-as-a-service platform, known as Falcon, with a new tool called RAVEn. This new platform will analyze publicly available data rather than relying solely on internal ICE data. Moreover, while Republican administrations have typically favored increased military spending, Trump has indicated a desire to de-escalate conflicts in regions like Ukraine and the Middle East, adding further uncertainty to future military spending.

Are Palantir’s Financials Justifying Its Valuation?

In its most recent quarter, Palantir's revenue grew by 30% year-over-year to reach $726 million, while adjusted earnings before interest, taxes, depreciation, and amortization rose by 39% to $283.6 million. While these results are commendable, they do not appear sufficient to support the stock's high forward price-to-earnings ratio of 158. For comparison, the S&P 500 has an average forward PE estimate of 24, and industry leader Nvidia currently trades at 30 times its expected earnings, despite reported top-line growth of 94%.

This evaluation suggests that Palantir’s market valuation may not be in line with its actual performance and future potential. Future developments in Trump’s presidency may not provide the growth impetus the market currently anticipates, leading many to believe that Palantir's stock may decrease in value as 2025 approaches.

No positions have been taken in any mentioned stocks. Specific companies like Nvidia and Palantir Technologies are recognized as significant players in their fields.

Palantir, AI, Stock