To The Moon

Palantir Technologies continues to attract increasing interest for its analytical capabilities, and much of that interest appears to revolve around AI and machine learning (ML). In CEO Alex Karp's 2023 annual letter to shareholders, he credited the rising prominence of artificial intelligence with boosting interest in Palantir.

The question for investors is how that could translate to growth in the software-as-a-service (SaaS) stock. Fortunately for shareholders, the company's AI capabilities could serve as the catalyst Palantir needs to reverse the stock losses sustained over the last two years.

Palantir and artificial intelligence

Investors know Palantir best for its defense-oriented Gotham platform. This platform, which uses AI to deliver analytical insights, played a role in helping the CIA find Osama bin Laden.

However, Gotham's addressable market of potential clients is tiny. Thus, the company created Foundry to apply its analytical capabilities to the commercial sector.

Foundry has proven popular. Despite a cost of $1 million per month to subscribe to Foundry, its U.S. commercial customer count grew by 79% in 2022, a strong indication that the company can succeed in this sector.

Gotham and Foundry depend on the same AI-based technology. AI helps Palantir manage data over time, meaning it can also apply models to downstream operations, creating end-to-end models. Additionally, with the ML tools added, it can improve models continuously based on decisions and feedback. This approach secures an organization's data foundation, connects micro models that can each solve one part of a larger problem, and integrates the data and solutions to achieve a specific objective.

Palantir's financials

Given Palantir's financials, AI appears to have contributed to the company achieving investor objectives. Its $1.9 billion in revenue for 2022 marked a 23% rise compared with the prior year. Also, slower growth in the cost of revenue and its operating expenses allowed it to reduce the net loss to $371 million versus $520 million the year before.

From a quarterly standpoint, Palantir achieved profitability in the fourth quarter with a net income of $33 million. Admittedly, a $45 million gain in investments made that profit possible. But operating losses in Q4 2022 fell to $17 million, down from $161 million in the fourth quarter of 2021. For this reason, the company can probably meet its goal of achieving an operations-driven profit if it maintains a growth trajectory.

Moreover, Palantir stock appears poised for higher gains. It has risen approximately 40% since briefly falling below the $6 per-share price level in December. Also, it sells for a price-to-sales (P/S) ratio of around 9. That is just above its record lows and well below the highs of early 2021 when its P/S ratio peaked at 46.

Consider Palantir

Given the upward trend in the stock and the low valuation, investors could continue to bid Palantir stock higher. Thanks to its AI and ML capabilities, an increasing numbers of customers willingly pay a premium price to benefit from Palantir's analytical capacity.

Furthermore, Palantir has now delivered positive quarterly net income, and revenue and cost trends indicate it could post a yearly profit as early as this year. That serves as a bonus as investors seek to profit from the increased interest in AI, and it positions Palantir stock for a run that could bring outsized returns as profits and AI interest grow.