The excitement around AI is fueling the tech world to new heights thanks to the Magnificent Seven. However, many investors understand that there are plenty of opportunities in the AI market beyond the Magnificent Seven, which leads us to Palantir Technologies (NYSE: PLTR), a name that is definitely worth paying attention to in the artificial intelligence space.
Palantir came to the scene in 2023 when it released its Artificial Intelligence Platform (AIP), which became very popular when the company began hosting immersive seminars called “boot camps” as part of its marketing campaign, which greatly boosted PLTR stock, as it’s up more than 160% over the past year.
Institutional Investors are Watching PLTR Stock
It is not just retail investors who understand that great AI opportunities exist outside the big players, but institutional investors too. In fact, DNB Asset Management recently cut positions in Apple (NASDAQ: AAPL), Tesla (NASDAQ: TSLA), and Microsoft (NASDAQ: MSFT), and more than doubled its stake in PLTR stock in the first quarter.
The firm sold around 668,000 Apple shares to end the first quarter with 3.6 million shares. They also sold 103,000 Tesla shares, ending the quarter with approximately 600,000 shares. In addition, the asset management firm sold 750,000 Microsoft shares, cutting its stake to 3.5 million shares. On the other hand, DNB bought nearly 430,000 more Palantir shares to lift its stake to approximately 754,000 shares at the end of the first quarter.
Palantir’s Government Revenue Growth
Palantir’s involvement with the government and the contracts it wins from it provides it with a crucial sense of stability, as compared with its potentially more lucrative but less fixed commercial contracts. This was indeed the case with Palantir recently, as it received three new government contracts, including one that would allow two of the company’s product offerings, Palantir’s AI Mission Command Capability and its Predictive Maintenance & Precision Sustainment Suite, to be available to support critical missions across the Department of Defense (DoD).
Palantir critics have been issuing warnings about PLTR stock, claiming that the government business will slow down and Palantir will lose its strongest suit. When you take a look at the company’s financials, you might think that they’re right, as government revenue was up by 11% in Q4 of 2023, compared to 23% for the same period in 2022.
However, critics certainly forget to mention that the government needs to approve the budgets for the Palantir contracts, which could take some time and slow down the flow of cash into the company but doesn’t affect the expected revenue from the contract. Palantir’s management actually recognizes this, which is why it’s exerting serious efforts to grow the commercial side of its business.
Palantir’s Growing Commercial Business
According to recent reports, Palantir has recently met with agencies to pitch inventory planning, programmatic sales, and campaign optimization use cases. The company believes that advertising agencies can use its Artificial Intelligence Platform (AIP) for a wide range of cases and applications. This could be a huge deal for Palantir because it could allow them to reach more audiences and increase their customer base. Moreover, all of this will be through the industry’s middlemen: media agencies, which are largely responsible for planning, organizing, and buying advertisements on behalf of major brands that Palantir could partner up with.
It is worth noting that both the government and commercial contracts for Palantir provide recurring revenue, which is always a big plus for investors in forecasting future growth. On top of that, with firms like DNB leaving some of the Magnificent Seven and purchasing more Palantir shares, it all adds up to the potential long-term success of Palantir.
Palantir’s Q1 2024 Expectations
Palantir’s Q1 earnings report is just around the corner on the 6th of May, and the company’s management anticipates revenue in the range of $612 million to $616 million, which should be around $322 million in government revenue and $292 million in commercial revenue.
During the same quarter last year, Palantir generated revenue of $337 million, split into $107 million in commercial revenue and $230 million in government revenue, so the company is expecting its revenue to almost double year-over-year, which is certainly a bullish sign. Meanwhile, the full 2024 fiscal year revenue is expected to be $2.6 billion, with an adjusted operating income projected at the range of $834 to $850 million for the year and adjusted free cash flow in the range of $800 million to $1 billion.
If Palantir’s Q1 report for this year manages to achieve the estimated revenue or even exceed it, it could play a crucial role in the PLTR stock’s performance with a certain boost to occur. Additionally, it could also lead to another great catalyst for PLTR stock, which could happen this June.
PLTR Stock in the S&P 500?
The S&P 500 is an index of the 500 biggest companies in the country, and it’s generally considered to be a reference point for the overall health of the market. There’s a rebalancing happening in June, and Palantir could get in, which would be a big deal for the company, since getting into the S&P 500 is a big milestone for businesses.
The company’s coverage from investment banks and interest from hedge funds could increase if it enters the S&P 500, which will definitely be a positive thing for the PLTR stock. This could pretty much be the catalyst that would boost the company’s Q2 results, and if the company achieves profitability in Q1, then its chances of getting into the S&P 500 will increase, because selectors want to be sure that one profitable quarter isn’t an anomaly.
However, meeting the criteria to be added to the index is no walk in the park, and Palantir has struggled to get in before. That being said, Palantir has been eligible for the S&P 500 inclusion for quite some time now, thanks to its consistent revenues, and it’s guaranteed that induction into the S&P 500 index will put PLTR stock on the radar of more institutional investors.
The Bottom Line
There’s a lot coming up for Palantir, from new government and commercial contracts to a possible induction into the S&P 500. With PLTR stock trading at $20.97, it looks like now might be a good time to buy PLTR stock in anticipation of the upcoming events in May and June.
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