Shares of Palantir Technologies surged in early Friday trading following an upgrade in price targets by a leading Wall Street analyst. This boost comes on the heels of Palantir’s strong second-quarter earnings and a significant new partnership aimed at expanding its flagship artificial intelligence (AI) platform.
Impressive Earnings and Raised Forecast
Palantir, which co-founder Peter Thiel launched in 2003, reported record quarterly profits of 6 cents per share for the quarter ending in June. Revenue for the period saw a 27% increase, reaching $678 million, driven in large part by the growing demand for its AI-powered AIP Logic platform. This platform, which helps test and improve AI-related strategies, has been a key contributor to Palantir’s financial success this year.
Notably, Palantir has raised its annual profit forecast for the second time in 2024, reflecting continued confidence in its growth trajectory. The Denver-based company now anticipates full-year sales of approximately $2.75 billion, with adjusted income expected to be between $966 million and $974 million.
Strategic Shift to Commercial Business
One of the standout aspects of Palantir’s recent performance has been its success in expanding its commercial division. Sales in this segment surged by 55% during the quarter, signaling a successful shift away from its traditional reliance on government contracts. This expansion into the commercial sector is seen as a critical growth driver for Palantir, particularly as it seeks to diversify its revenue streams and tap into new markets.
Third Bridge analyst Jordan Berger commented on Palantir’s performance, noting that the company’s value proposition for AI and generative AI solutions continues to resonate with customers despite a competitive and complex market landscape. He also highlighted that Palantir’s new AIP and Bootcamp sales models are effectively broadening the company’s addressable market.
“Game-Changing” Partnership with Microsoft
A major catalyst for Palantir’s recent momentum is its newly announced partnership with Microsoft. This collaboration will see Palantir’s products integrated into Microsoft’s Azure cloud services, particularly for government customers. Additionally, Palantir will leverage Azure’s OpenAI capabilities, deploying them in classified environments for its government and intelligence community clients.
Wedbush analyst Dan Ives emphasized the significance of this partnership, suggesting that it will serve as a launching pad for the broader adoption of Palantir’s AI Platform (AIP) within the federal sector. Ives maintains an ‘outperform’ rating on Palantir stock, with a price target of $38, reflecting confidence in the company’s ability to capitalize on this partnership and accelerate its AI implementation efforts.
Analyst Reactions and Stock Performance
The positive outlook for Palantir was echoed by Citigroup analyst Tyler Radke, who raised his price target for the stock to $30 per share. Radke pointed to the company’s ability to secure large government contracts as a key factor in its strong second-quarter performance. He also noted that Palantir’s approach, bolstered by AIP, is effectively tapping into emerging AI spending pools, particularly in the U.S. commercial sector.
Despite these positive developments, Radke expressed caution regarding Palantir’s valuation, which he described as one of the highest in the software sector. He cited a next 12 months revenue multiple of 19x and an enterprise value to free-cash flow multiple of around 60x, suggesting that future returns may be capped due to continued “government lumpiness.”
As of the premarket trading session on Friday, Palantir shares were up 1.95%, trading at $29.85 per share. This increase extends the stock’s year-to-date gain to approximately 74%, underscoring investor optimism about the company’s future prospects.
Looking Ahead
With the Microsoft partnership solidified and Palantir’s ongoing efforts to expand its commercial business, the company is well-positioned to maintain its momentum in the AI space. Investors and analysts alike will be watching closely to see how Palantir continues to execute its strategy, particularly as it navigates the complexities of the broader market and seeks to deliver on its ambitious growth targets.
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