Is Palantir A Buy In July On Artificial Intelligence Outlook, Growing Profitability?

There's plenty for bulls and bears to hash out over Palantir Technologies $Palantir (PLTR.US)$ . Bulls point to improved profitability for PLTR stock. Bears focus on decelerating revenue growth for Palantir stock. Then, there's buzz over artificial intelligence stocks to consider for the maker of data analytics software.

As of the market open on July 8, PLTR stock had advanced 58% in 2024. Second quarter earnings for Palantir stock are due the week of Aug. 5.

PLTR Stock: AI Customer Event
The company continues to make progress with its "Artificial Intelligence Platform," initially rolled out in early 2023. Palantir hosted its fourth AIP event on June 6.

At AIPCon4, Palantir said over 70 customers presented their prototype to production-grade AI use cases via Palantir's "bootcamps," said a Jefferies report. More than 1,300 AIP bootcamps have been completed since 2023, including 900 this year and nearly 500 since March.

However, Palantir has not disclosed pricing for AI products. Some analysts say Palantir needs to show more progress with generative AI commercial deployments.

Enterprise software stocks have generally under-performed in 2024. However, the iShares Expanded Tech-Software Sector ETF (IGV) posted a strong June. The software index is now up over 9% in 2024.

Still, Wall Street analysts now do not expect software makers to monetize generative AI, or "conversational AI," in a material way until 2025. Here's a look at the enterprise AI market.

Project Maven Extended
Meanwhile, the U.S. Army on May 29 announced that it has extended Palantir's existing Maven Smart System (MSS) contract for five years. Palantir was one of the early contractors for Project Maven, launched in 2017.

Project Maven is part of the U.S. Army's effort to bring artificial intelligence to the battlefield. The Maven contract brings in about $90 million annually, one analyst estimated.

Also, Palantir announced that the Department of Defense Chief Digital and Artificial Intelligence Office (CDAO) awarded a contract that could be worth $480 million over a 5-year period

Palantir Stock Valuation Amid AI Buzz
Meanwhile, Palantir stock fell on its Q1 earnings report as analysts focused on U.S. commercial market growth amid weakness in the software maker's international business.

"Palantir posted upbeat Q1 results that were again led by sustained momentum in its U.S. commercial business, where it is one of the earlier software companies to meaningfully monetize generative AI," said Deutsche Bank analyst Brad Zelnick in a report. "The ability to drive stronger acceleration in 2024 is being constrained by Palantir's government and international commercial businesses that aren't yet seeing similar AI tailwinds as U.S. commercial."

On the news front, there's plenty for investors to mull. Oracle (ORCL) and Palantir announced a cloud computing alliance.

In addition, Palantir has won a new, $178 million U.S. Army contract for project TITAN, a battlefield system using artificial intelligence.

Meanwhile, here's a look at Palantir's international business, including how AI is doing in Europe.

PLTR Stock: Will AI Be A Growth Driver?
Also, Palantir stock jumped 167% in 2023. The Nasdaq composite climbed 43% while the S&P 500 rose 24%.

PLTR stock bulls point to artificial intelligence software as a growth driver. Palantir has already mined the AI opportunity with government customers for intelligence gathering, counterterrorism and military purposes.

Now Palantir aims to use generative AI to spur growth in the commercial market. The software maker has expanded into health care, energy and manufacturing.

PLTR Stock: Governance Structure
In 2023, Palantir announced a $1 billion buyback for PLTR stock. But, it had not bought any shares through Dec. 31.

In addition, PLTR stock trades well below the software maker's all-time intraday high of 45 set in late January 2021.

Meanwhile, Palantir's governance structure gives Karp and co-founder Peter Thiel long-term control of the company through super-voting rights.

The company name is derived from the palantiri, which are crystal ball-like "seeing stones" from the "Lord of the Rings" book and film series. Palantir means "one that sees from afar."

In addition, Palantir engineers often customize software for the needs of customers. That extends the time needed to ramp up "digital transformation" projects. So after Palantir wins a contract it may take awhile to generate revenue.

The Denver-based company offers three platforms. One is Palantir Gotham, used primarily by government agencies. There's Palantir Metropolis for banks, financial services firms and hedge funds. And Palantir Foundry is used by corporate clients.

Government Biggest Market
Palantir gets nearly 60% of its revenue from government agencies. Decelerating revenue growth is an issue. In 2022, revenue growth slowed to 24% from 40% in 2021 and 47% in 2020. In 2023, revenue grew 17% year-over-year to $2.23 billion.

For the quarter ended March 31, Palantir earnings using generally accepted accounting principles, or GAAP, were 8 cents a share, up 60% from a year earlier. Revenue rose 21% to $634 million.

Analysts had predicted Palantir earnings of 8 cents a share on revenue of $615 million.

Denver-based Palantir said government revenue rose 16% to $335 million, vs. estimates of $322 million in sales. In addition, commercial revenue rose 27% to $299 million, topping estimates of $292 million.

U.S. commercial revenue rose 40% compared with 70% in the fourth quarter of 2023. In addition, Palantir said it closed 136 U.S. commercial deals in the quarter, up from 70 in Q1 2023.

Meanwhile, Palantir reported $24 million of revenue related to investments in special purpose acquisition companies, or SPACs.

Further, Palantir said it now expects "revenue in our U.S. commercial business to grow 45% or more in 2024 compared with 2023."

For the current quarter ending in June, Palantir said it expects revenue of $651 million at the midpoint of guidance. Analysts had predicted sales of $643 million.

Palantir tweaked its 2024 revenue forecast slightly higher to a range of $2.68 billion to $2.69 billion.

Palantir Forges Partnerships
In November 2022 Palantir acquired full ownership of a joint venture in Japan that sells the company's software. Japanese insurance firm Sompo Holdings is the biggest customer.

Then in 2023, Palantir began consolidating revenue from the joint venture in its earnings reports.

Further, Palantir recently expanded its cloud computing partnership with Microsoft (MSFT) that targets government agencies.

To speed up corporate adoption of artificial intelligence software, Palantir and IBM formed a global partnership. Under the deal, Palantir also made its Foundry software available to IBM's cloud computing customers. The Foundry platform is a centralized data operating system that lets users manage, filter and visualize large data sets.

Palantir Stock Technical Analysis
Meanwhile, Palantir's Relative Strength Rating stands at 99 out of a best-possible 99.

Also, Palantir stock holds a Composite Rating of 98 out of a best-possible 99, according to IBD Stock Check-up.

IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.

PLTR stock holds an Accumulation/Distribution Rating of B-minus. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. A+ signifies heavy institutional buying; E means heavy selling. Think of a C grade as neutral.

As of the market open on July 8, Palantir stock trades 1% below an entry point of 27.50.