How Palantir's AI Growth is Fuelling Investor Confidence

As AI elevates business operations across the world, now raising sectors such as government services, healthcare and finance, organisations are seeking to harness its power even further.

AI typically is improving efficiency and decision-making within companies and now firms specialising in these relevant technologies have seen significant increases in their market value and revenue.

Palantir Technologies, a data analytics company founded in 2003, has emerged as a frontrunner in this AI-driven time.

Known for its work with government agencies and large corporations, Palantir is known for its development of sophisticated software platforms that enable organisations to analyse vast amounts of data and derive actionable insights.

Recently, the company's recent financial performance has caught the attention of investors and industry analysts alike, highlighting the growing importance of AI in both public and private sectors.

Palantir's AI platform drives growth

Palantir's stock price has seen a substantial increase following the release of its third-quarter results.

The company's shares jumped over 12% on Tuesday after it raised its annual revenue forecast for the third time this year.

This surge in value has made Palantir one of the biggest stock market winners of the generative AI boom, with its shares more than doubling in value in 2024.

The company's success can be attributed to the increasing demand for its AI platform, which offers a range of capabilities.

Palantir's technology is used to test and debug code, evaluate AI-related scenarios and provide government-oriented services such as software to visualise army positions.

This versatility has allowed Palantir to capture a significant share of the growing AI market.

In response to the strong demand, Palantir has raised its revenue forecast for 2024 to between US$2.805bn and US$2.809bn, up from its previous projected range of US$2.742bn to US$2.75bn.

This upward revision reflects the company's confidence in its continued growth trajectory.

Government contracts fuel revenue growth

Furthermore, a significant portion of Palantir's revenue comes from US government contracts, which saw a 40% surge in the third quarter.

These contracts accounted for more than 44% of the company's total sales of US$725.5m during this period.

This strong performance in the government sector highlights the increasing reliance of public agencies on AI-powered analytics for decision-making and operational efficiency.

Morningstar analysts expressed optimism to Reuters about Palantir's future growth prospects, particularly in the government sector, saying: "We see a long runway of growth in the government sector, owing to the massive demand for AI-first solutions across governmental functions such as the military and healthcare."

Market performance and valuation

Palantir's strong performance has not gone unnoticed by the broader market.

The company's stock has outperformed the S&P 500 index this year and was added to the benchmark index in late September, a move that typically increases a company's visibility and attractiveness to investors.

If the premarket gains hold, Palantir is expected to add US$12bn to its market value.

This significant increase reflects the growing investor confidence in the company's AI-driven business model and its potential for future growth.

Reflecting the breadth of AI growth through Palantir, the company has partnered with L3Harris, the American technology company and defence contractor, in aim to enhance defence technology by combining AI capabilities with advanced sensors.

This signifies a growing trend of AI integration in defence, potentially reshaping the tech industry's approach to military applications.

However, Palantir's rapid rise across industries has also led to questions about its valuation.

Morningstar analysts also said to Reuters, that the recent surge in Palantir's stock value could make it vulnerable to market fluctuations: "any bump in the road, such as sales execution challenges or weaker-than-expected top-line growth or guidance, could materially affect the stock's valuation".

The company's current forward price-to-earnings ratio of 95.43 is significantly higher than some of its peers in the tech industry.

For comparison, Oracle, the multinational technology company, trades at a ratio of 25.60, while Snowflake, a cloud-based data warehousing company, has a ratio of 126.92.

This high valuation suggests that investors are pricing in substantial future growth, but it also raises concerns about the potential for market volatility.

As the AI industry continues to evolve and expand, companies like Palantir are likely to face both opportunities and challenges.

The growing demand for AI-powered solutions across various sectors suggests a promising future for firms specialising in these technologies.

Alex Karp, Chief Executive Officer of Palantir says: “We absolutely eviscerated this quarter, driven by unrelenting AI demand that won’t slow down. 

This is a US-driven AI revolution that has taken full hold. The world will be divided between AI haves and have-nots. At Palantir, we plan to power the winners”. 

Make sure you check out the latest edition of Technology Magazine and also sign up to our global conference series - Tech & AI LIVE 2024​​​​​​​

Technology Magazine is a BizClik brand