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Palantir‘S (NYSE:PLTR) Its share price has risen 162% in the past year as the company has benefited from demand for it artificial intelligence (AI) technology. But these gains have many investors wondering if there is still room for Palantir to operate and where the company could be in a few years.
Here’s what’s going well for the company right now and where Palantir could be in three years.
Palantir is doing well
If you keep up with Palantir, you know that the company has been a leading player in AI software for years, with a specialty in the government sector. Palantir’s analytics systems have helped the military and intelligence agencies use large amounts of data.
Palantir’s government segment revenue rose 24% to $278 million in the second quarter. But Palantir has been expanding its AI reach into the commercial market in recent years, and the move is already paying off. Commercial segment revenue rose 33% to $307 million in the quarter and now accounts for 45% of total revenue.
Management says U.S. commercial revenue is expected to increase 47% for the full year to $672 million, a substantial increase and a good indicator that its commercial services are resonating with customers.
If all that isn’t good enough, Palantir is also profitable, reporting net income of $135.6 million in the quarter, with an impressive 20% profit margin. Furthermore, the company only has $1.1 billion in debt.
How Palantir could benefit over the next three years
Palantir bulls point to the company’s current and rapid growth growing AI market as reasons for optimism. For example, analysts estimate that Palantir’s revenue will grow by about 25% this year and 21% in 2025, with one analyst expecting the company’s revenue to reach $5 billion by 2027 – more than double last year’s revenue .
This confidence in Palantir’s potential growth is fueled by an estimated $1 trillion in artificial intelligence spending in the coming years. Goldman Sachs estimates.
I think Palantir is well positioned to benefit from at least some of this spending. Companies of all shapes and sizes are trying to position themselves as AI leaders, or at least AI competent, and that will lead to a huge increase in spending to keep up with the competition.
Is Palantir a bargain now?
I think opening a position in Palantir could pay off in the coming years as AI investments increase and the company taps into a growing customer pool. However, investors should know that the company’s shares are pricey, as the stock currently has a price-to-earnings ratio of 90.
That means cautious investors may want to wait until there’s a pullback in Palantir’s stock to pick up shares or find an AI stock with a cheaper price tag.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Goldman Sachs Group and Palantir Technologies. The Motley Fool has one disclosure policy.
Where will Palantir be in three years? was originally published by The Motley Fool