The big problem Palantir Technologies hopes to solve for its customers

Data analytics company Palantir Technologies (PLTR 1.55%) has seen an increase in its growth rate as its customers look to use artificial intelligence (AI) to improve their day-to-day operations. Palantir held bootcamps to showcase its new AI platform, AIP, to demonstrate to customers how it can help their businesses. And it looks like it will pay off with an improved growth rate.

While many companies can offer to provide AI solutions, it can often be difficult to implement them. This is where Palantir can deliver excellent value to its customers and unlock tremendous growth opportunity for the business.

Going from prototype to production is not easy for many companies

Designing new processes and testing new AI products may seem easy, but implementing changes and getting them into production is a different game, and this is where Palantir sees many companies struggling.

On its latest earnings call, Palantir’s chief technology officer Shyam Sankar said: “It’s so easy to create an AI prototype, the equivalent effort of making a PowerPoint slide, but it’s actually very, very hard to achieve that in production, probably 10 to 100 times harder than moving traditional software to production, and that’s where our entire market opportunity lies.”

And not getting projects into production can be a potential source of frustration for companies as they try to justify costly AI initiatives. Research company Gartner estimates that 30% or more of generative AI projects could end up abandoned by the end of next year as companies struggle to validate the return on their investments. This may cause managers to feel pressure to move projects into production sooner rather than later, which may lead to increased demand for Palantir services, including AIP.

Palantir’s sales soared, and profits grew even faster

Palantir’s business has moved on a positive trajectory in recent quarters as it has not only become consistently profitable, but its top and bottom line results have also grown. And a particularly positive sign is that profits grew at a faster rate than revenues.

PLTR Revenue Data (Quarterly) by YCharts.

In its latest quarterly results, which ended June 30, Palantir’s revenue rose 27% to $678 million, faster than the 13% growth it achieved a year ago earlier.

However, even amid all this revenue and even profit growth, Palantir stock still doesn’t look cheap. With Palantir trading at more than 180 times trailing earnings and nearly 90 times next year’s estimated forward earnings (based on analyst expectations), investors are still paying a hefty premium for the business. Even on a revenue basis, Palantir looks extremely overvalued, trading at nearly 30 times its sales.

Palantir stock has potential, but it also comes with risks

Palantir has doubled in value this year as it has become a popular buy among AI investors. But there are challenges and headwinds, including a possible recession and a decline in AI spending.

While the business appears to be headed in the right direction, Palantir’s expensive valuation would prevent me from buying the company’s stock today. Without a more significant acceleration in earnings or a bigger discount in the share price, there simply seems to be too much optimism and future growth already forecast in its valuation to make it a good buy and a value investment. high probability of generating a strong future return.

Investors may want to wait to see if the company can actually build on its recent results and continue to accelerate its growth rate, because if it can’t, the stock could be due for a correction. As of now, it might be a bit too risky to buy the stock given the high price.