Why Palantir Deserve A Rally To Above $24 And What Could Stop It?

Despite a recent pullback, Palantir's strong financial performance, including its first-ever profit and consistent year-over-year growth, positions it for future expansion. With promising growth prospects driven by its artificial intelligence platform and effective expense management, Palantir's shares are poised for potential appreciation.

Palantir's first-quarter earnings were far from bad. However, the results disappointed the market as shares fell more than 15% in the following days. It reported earnings of 8 cents per share, beating market estimates, while revenue came in at $634 million, indicating growth of 21% compared to the same quarter last year. In the U.S. alone, the company generated $150 million in revenue in the commercial segment, marking an annual increase of 24%.

Palantir also revealed guidance suggesting the regional market should maintain its position of dominance and become one of the primary growth drivers in the short term.

If we looked at how Palantir’s shares have been trading since its last earnings, we could see that there has been increased selling pressure, I believe this is mainly due to the company's reported expenses, totaling $437.20 million, representing an annual increase of 5%.

That does not sit well with investors, furthermore, Palantir CEO Karp had give future expectations of increased expenses, this makes investors apprehensive, as Karp indicated that spending will escalate at a higher rate throughout the year.

Palantir's business is experiencing significant demand for its services, prompting investments in hires and consequently leading to increased expenses. Though investors are factoring the growth over the long term, but the concern of cost expenses increasing overwhelmed what long term expected growth could do.

We could see that Palantir is trading below the 50-day period since its last earnings and there have been increased selling pressure.

So how can Palantir start another rally? In this article I would like to share what I have observed and assess why Palantir shares should continue their rally and how the recent pullback could present an opportunity for investors to buy the dip.

Palantir recently provided clarity on its direction for the year ahead. The company revised its revenue guidance 2024, projecting $2.68 billion at the midpoint, with operating income expected to range between $868 million and $880 million. It emphasized this upgrade also applies to operations income, reiterating the free cash flow projection at $900 million at the midpoint. Moreover, it anticipates profitability every quarter of 2024, signaling an ambitious outlook.

Palantir ended the first quarter with $3.90 billion in cash and equivalents, providing a strong position to execute share buybacks. During the earnings call, the company announced it repurchased roughly 500,000 shares as part of its share repurchase program. As of the end of the quarter, it has approximately 990 million shares remaining from the total original authorization.

This share repurchase activity implies a reduction in the number of shares outstanding, typically resulting in more ownership of the company's stock concentrated among existing shareholders. This move potentially leads to increased earnings per share and greater control over decision-making for those shareholders.

And if we looked at it from the MACD and KDJ, we could see that MACD might make an upward move soon with this share repurchase and we could see that KDJ, the J value is about to make an upside move.

But this could depend on whether investors could return back with stronger demand (buying) for the stocks. This is a good opportunity to buy the dip if you believe in the long term potential for Palantir.

I personally see Palantir as one of the most promising companies positioned to ride the AI boom smoothly. Its artificial intelligence platform has gained significant traction through demo workshops, resulting in substantial revenue growth, surpassing $1 billion over the last 12 months. The success of the AIP workshops indicates their potential to drive adoption and revenue growth further.

What Palantir need is to come up with a strategy to better balance its expenses, though this might not be realistic moving forward for a company which require heavy investment on technology.

But if we look at the expectation of more significant revenue demand, coupled with the share repurchase program, these should help to reduce their projected increase in expenses shortly.

So if we look at pullback price target if that did not materialize and what happen if it does, we could see Palantir move higher than $24, but there is a psychological price level of $22 that Palantir need to clear.

If they could not gather significant revenue to offset the expenses, then we could see Palantir going down to below $17 or close to $16.50.

But I believe this turnaround is imminent, and with it, Palantir will resume generating good returns for investors.

If we look at how Palantir is trying to come up with strategy to offset the expenses, the increasing demand generating significant revenues should be able to show in near term.

This should give traders and investors confidence to come back to support Palantir, and we could see a rally coming soon.

Appreciate if you could share your thoughts in the comment section whether you think Palantir could stage a rally soon as the expenses concerned could be addressed by stronger demand generating good revenues?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.