The tide may have finally turned for Palantir Technologies (PLTR 1.40%). After a massive sell-off during the 2022 bear market, improving financials and its ability to help its clients leverage artificial intelligence (AI) have made its stock increasingly popular with investors. It has risen by around 135% from its 52-week low.
Amid that increase, both analysts and investors have begun to question whether the stock has moved too far, too fast. Still, given the company's improving performance, the downgrade looks more like a buying opportunity than a reason to sell.
The slowdown in Palantir
Indeed, Palantir stock has risen significantly in a short time, so one can understand why that might give investors pause. It appears that is the consensus among analysts at Raymond James Financial. In a client letter obtained by Investing.com, it cited the increasing challenge of finding a catalyst as well as the higher valuation for the downgrade. The stock fell following that news.
Despite the recent hesitation, the run-up is real, and valuations have risen in recent months. Its price-to-sales (P/S) ratio of 15 has risen well above its P/S ratio of 7 from the beginning of the year.
Moreover, investors should remember that its sales multiple rarely fell below 24 in 2021 and reached a record high of 46 that year. This shows a willingness for investors to pay a higher multiple in a friendlier environment.
Furthermore, unlike in 2021, Palantir is now a profitable company. Its net income of $17 million under generally accepted accounting principles (GAAP) in the first quarter of 2023 was the second consecutive quarter of positive earnings. Also, Palantir forecast it would earn positive GAAP net income in every quarter this year, making it stand out over other emerging growth tech stocks that continue to lose money.
Palantir and AI
Nonetheless, one might argue that the growth catalyst drawing investors' attention is AI, and Palantir seems to have become a leader in that field. Its existing platforms depend heavily on AI to derive their analytical insights, and the company credits AI with providing an end-to-end solution, allowing micro models to run separately as AI connects disparate workflows into a comprehensive model.
Moreover, its AI capabilities received a huge boost with the release of AIP, or Artificial Intelligence Platform. AIP will allow its clients to drive insights by leveraging large language models, making Palantir more valuable to its growing client base.
Consequently, Palantir continues to outshine competitors that cannot match its capabilities. Other big data companies have not replicated the company's ability to take data and derive analytical insights. This will likely serve as a tailwind for both the company and the AI stock for the foreseeable future.
Palantir is likely not done rising
Considering Palantir's capabilities, revenue growth, and profitability, the stock should continue to rise. Admittedly, investors might see slowing growth as its valuation and stock price have increased significantly.
However, Palantir's unique value proposition and the increasing recognition of its AI capabilities should bode well for the stock. As it improves its AI capabilities and increases its profitability, more investors will likely take an interest in the stock amid its rising stock price.
