With AI applications gaining more and more interest, Palantir Technologies Inc. (NYSE: NYSE:PLTR) is an AI stock I believe will emerge as the biggest winner. As AI applications become increasingly important for organizations, PLTR’s growth potential makes it an attractive investment in this niche.
PLTR recently reported its first profitable quarter in Q4 2022 and expects to post a profitable FY23. Although PLTR soared by as much as 35% on bullish earnings and guidance, the stock is losing some of its momentum. As the stock drops back to its support, I believe purchasing PLTR at $7 or below offers an attractive opportunity for long-term investors.
Q4 Earnings & 2023 Guidance
After 20 years in operation, PLTR surprised the Street by posting its first profitable quarter much earlier than expected. After reporting a GAAP net income of $31 million in Q4 2022, the company beat estimates and shared bullish guidance for FY23. According to its guidance, PLTR expects to post a net profit this year by continuing to manage its expenses and invest in its offerings.
This revenue surprise can be partially attributed to a 23% increase in government revenue and an 11% uptick in commercial revenue. Considering that other tech companies have faltered under recent macro headwinds, I believe that PLTR’s growth is a bullish sign that indicates the company is in a good position to meet its guidance.
AI Capabilities
While Palantir may not initially come to mind as a leading AI company, its technology speaks for itself. At the core of PLTR’s AI capabilities is its Foundry offering. A data integration and management platform, Foundry allows users to access and transform data from a variety of sources.
Palantir already boasts a number of high-level clients, but Foundry has become the focal point of SOMPO Holdings’ - a leading global insurer - Real Data Platform. SOMPO has been using Foundry since 2019 and recently both parties signed a $50 million, 5-year expansion agreement for the rollout of critical workflows and the development of RDP. Through this, Foundry will be rolled out to more than 10 thousand salespeople across SOMPO Japan.
Moreover, SOMPO will promote Foundry for Japanese companies, government agencies, and society through Palantir Technologies Japan which was jointly formed by SOMPO and PLTR. Based on this, PLTR’s Japan business has tremendous growth potential considering SOMPO’s stature in the Japanese insurance market. For this reason, I believe PLTR could achieve its guidance and revenue estimates for 2023.
Role In the Ukraine War
One of the main reasons for PLTR’s impressive growth in 2022 has been its role in the Ukraine war. PLTR’s AI products are proving their worth on the frontlines in Ukraine where the Ukrainian Armed Forces have been using the recently unveiled Skykit autonomous intelligence centers. Through this product, soldiers can make decisions and perform operations from remote locations in conjunction with PLTR’s other software platforms. With the war becoming more active, many expect that it could continue for another year. Unfortunately, this conflict could be a growth opportunity for PLTR as more governments seek to improve their defenses.
Customer Growth
On that note, PLTR experienced impressive customer growth in 2022 as its customers increased 79% YoY. PLTR also converted 13 pilots in Q4 - the most it converted in a quarter since its inception. Despite this, PLTR still has a lot of room to grow since it only serves 15% of the top 1000 companies in the US. Given that more and more organizations are embracing AI technology, PLTR appears to be on track for substantial growth in 2023 and beyond.
PLTR also offers impressive software platforms that help organizations integrate their data, decisions, and operations. Since data analytics are critical for organizations throughout the world, PLTR’s products have the potential to see increasing demand this year - expanding its customer base as a result.
Currently, only 24% of companies use big data analysis. However, 97.2% of companies are investing in big data and AI projects - providing a bullish outlook for PLTR. Given that PLTR’s products have created one of the best user experiences for working with data, I believe that demand for its products will continue growing in the future. For this reason, PLTR could be on the right track to achieve profitability in 2023 as its customer base continues growing.
IL6 Certification
Another reason I believe PLTR’s products will receive additional interest in 2023 is the IL6 certification. The company’s federal cloud service offering received this certification from the DISA last October. Since this is DISA’s highest level of certification, it allows PLTR to join Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) web services as the only cloud providers with IL6 status.
This certification allowed Microsoft and Amazon to be a part of a $9 billion DoD cloud contract alongside Google (NASDAQ:GOOGL) and Oracle (NYSE:ORCL). In this way, PLTR could secure more lucrative government contracts to provide cloud services moving forward. On top of that, PLTR may also witness additional interest from commercial customers since it can guarantee the processing and analysis of their data securely.
Buyout Potential
While the company offers a compelling long-term investment, PLTR could also be a profitable hold since it may emerge as a buyout target. CEO Alex Karp hinted at the possibility of a buyout in an interview saying “I think there’s going to be a lot of interest in us in buying our software and potentially in buying us.” He mentioned this point again during the company’s Q4 earnings call.
Considering the company’s impressive products and their role in the Ukraine war, I believe the company could be an attractive target for a major defense company to utilize its advanced technologies. Although no offer has been made, this speculation could one day become reality - especially if PLTR meets its guidance for 2023.
SBC Management
Despite the company’s impressive growth potential, PLTR could pose a risk related to its share-based compensation. This is the main reason for its bloated share structure consisting of 2 billion outstanding shares and a 1.7 billion share float. However, PLTR is actively working to limit this dilution as it has been consistently reducing its SBC throughout the past years. Based on this, PLTR is currently a safer investment than ever - making its current levels attractive for long-term investors.
Technical Analysis
After failing to break through its $10.30 resistance, PLTR appears to be dropping down to its $7.48 support. It’s broken through the 50 and 200 MAs so I’ll be watching for consolidation near $6.98 or lower.
I believe the market will price in its Q4 profitability and don’t expect it to retest its recent low of $5.95. Given the company’s growth potential, I believe that long-term investors have an opportunity to get shares of PLTR below $7 as the stock cools down after its run up.
Looking at the accumulation indicator, shareholders have been buying and holding PLTR since May which is a bullish sign. Meanwhile, the RSI has cooled off significantly on the hourly timeframe. With the indicator resting at 35, I believe PLTR could rally in the short term. But, in my opinion, long-term investors should wait for the stock to drop lower for a better entry.