Palantir’s AI Surge: Is PLTR Stock Really Worth the Hype?

After a year of being hyped as the ultimate AI winner, Palantir (NASDAQ:PLTR) stock is up over 200%, rising from $7 in January to a little more than $18 today. I have long been skeptical of Palantir. Its claims have long been well ahead of its financials.

PLTR stock has a market cap of over $40 billion on $2.1 billion of revenue, growing at 20% per year. The company is only marginally profitable, although it may now be added to the S&P 500.

The AI Hype Cycle and PLTR Stock

Palantir is riding an AI hype cycle. When the hype cycle goes up, so does the stock. When the hype cycle goes down, so does Palantir.

Delivering insights from large databases is now defined as AI. The insights are called machine learning. The databases are large language models. Palantir was doing this before it was cool. This is why analysts are hyping the stock.

Palantir developed its technology for use by the military and has extended contracts proving its value. Data can “see” what’s happening on a battlefield and help plan a campaign. It can catch changing conditions and alert leaders to threats quickly.

The challenge has been to go beyond this niche. Palantir calls the commercial version of its technology the Foundry. It has been lining up partners to deliver it. Any drop in the shares is seen as a buying opportunity.  

Foundry has found success in applications like hospital scheduling. Matching what’s available to what’s needed can be useful to planners of all kinds. It’s not as sexy as delivering pictures based on prompts, but it’s a lot more useful.

This may be why Blackrock now has a $1.5 billion stake in Palantir. It’s why Jim Cramer recently told investors to buy it, despite its sky high valuation. Whenever Palantir signs a new commercial partner, analysts start comparing it to Nvidia.

The Danger Signs

Palantir’s success in anticipating needs helped it win a contract with England’s National Health Service, but PLTR stock fell after the deal was announced. Its past as a military contractor quickly drew pushback. Patients were leery of giving it access to the data needed for Foundry to do its job.

The Generative AI boom has also brought competition to Palantir’s party. Many if not most big tech players are in the game. They see big profits in delivering different output, including computer code, from Internet-sized databases. They also don’t have Palantir’s proprietary attitude or history of military secrecy to contend with.

The Bottom Line

I have been wrong about Palantir stock for a long time. Any company whose leading edge technology delivers growth is going to command a big price. This is especially true if it can deliver profits, even small ones. Palantir’s entry into the S&P 500 will be a catalyst for buying.

To be worth my money, however, Palantir needs to grow faster than it is doing right now. It must deliver a lot more profit. Yet the company, being conservative in the best possible way, is not promising that.

As of this writing, Dana Blankenhorn had LONG positions in MSFT, AMZN, NVDA, and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.