Navigating Palantir’s Choppy Waters: What Investors Should Know Heading Into 2024

Among AI stocks, both high-profile and more under-the-radar, Palantir Technologies (NYSE:PLTR) continues to be one of the top choices. Those bearish on PLTR stock chalk up its strong 2023 performance to “AI hype.”

Yet while it’s easy to see why they jump to this conclusion, a substantive bull case can still be made. The use of artificial intelligence applications by commercial enterprises and government agencies keeps rising.

With this, Palantir (a developer of AI and machine learning software platforms) could handily exceed current growth and earnings forecasts.

But while Palantir has a lot to gain from the AI mega-trend, it’s still up for debate as to exactly when (and to what extent) the company’s AI catalyst will drive a re-acceleration in sales/big increase in profitability.

Therefore, expect the price action to continue being choppy in the near future. So, what’s the best move? Let’s find out.

PLTR Stock Growth Prospects and Valuation

Since January, Palantir shares have soared by around 170%. This puts it in the same league as other top “AI winners” in 2023. For instance, AI chip designer Nvidia (NASDAQ:NVDA), which has surged by an even greater amount since the start of the year.

However, unlike the situation with NVDA, where the company’s AI-related growth more-than-justifies its rally, with PLTR stock it’s admittedly easier for the skeptics to argue that its shares have moved up too far, too fast based on the buzz surrounding AI.

PLTR is up by triple-digits. However, based on sell-side forecasts, Palantir’s revenue is only expected to rise 16.7% (from $1.9 billion to $2.22 billion) for the full year 2023. Although revenue may rise by an even greater degree in 2024 (19.8%), forecasts for next year call for earnings growth of just 16%.

With this, I can understand those who are currently questioning PLTR’s rich valuation. On the surface, it makes little sense for this stock to trade for 70 times earnings. While at first glance Palantir may seem overpriced and over hyped, there may be a way for shares to sustain (and add to) this valuation.

What May Drive the Next Big Rally

Check out recent headlines about PLTR stock, and you’ll see quite a few regarding a negative development. I’m talking about news regarding possible issues between Palantir and its U.S. military clients over data ownership. That’s something that may affect the future performance of its governmental book of business.

However this may be yet another case of Wall Street analysts and commentators making a mountain out of a molehill. The company has denied that there is a data ownership conflict/that the company does not retain ownership rights to customer data.

Instead of being at risk of losing governmental business, it appears that Palantir is winning more business than expected.

As InvestorPlace’s Larry Ramer wrote last week, the company has bagged an unanticipated extension of its Vantage contract with the U.S. Army. That said, while the governmental business appears likely to keep humming along, that’s not where the PLTR needle-mover lies.

Rather, what could drive the next big surge for the stock will likely have to do with the growth of Palantir’s commercial business in the coming year. These results could handily beat the aforementioned expectations, which suggest only a moderate level of growth.

The Takeaway

In its latest quarterly earnings release, Palantir reported “beat and raise” results, and provided commentary that signals a strong likelihood of the company building on this success in subsequent quarters.

Demand for AI software from commercial clients isn’t slowing down. The lowering of interest rates this year is something else that could spur commercial demand for Palantir’s offerings, as an online commentator recently pointed out.

With this, there’s clearly an opportunity for Palantir to prove its skeptics wrong, and for its shares to not merely hold steady at current price levels (high-teens), but perhaps surge to $20, $25, or even $30 per share.

However, until the next earnings release (expected to happen in February), don’t expect major change in price action. Feel free to buy PLTR stock at current prices, but patience is key.

On the date of publication, Louis Navellier had long positions in PLTR and NVDA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.

The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.