Stock Market

Is Palantir Stock’s AI-Fueled Rally a Sustainable Surge or Short-Lived Hype?

Palantir stock (NYSE:PLTR) has emerged as a prominent AI stock, soaring more than 40% since the start of the year. This sort of surge places the stock as one of the best-performing tech names in the market during the first quarter. But questions obviously remain with respect to whether this AI-driven rally can continue, and if Palantir’s fundamentals can keep up with its heightened expectations.

Yes, Palantir stock has blown away earnings forecasts for previous quarters. It appears demand for the company’s big data and AI-driven models is high. That’s likely to continue for some time, as companies assess their AI needs, and look to secure a partner right away.

The concern some have is whether this AI tailwind is sustainable, for years and not quarters. Let’s dive into whether Palantir stock is the best way to play this space right now. 

Collaboration with Oracle

Palantir Technologies and Oracle announced a partnership to deliver secure cloud and AI solutions to government and business clients. This collaboration enhances data utilization, ensures compliance with sovereignty requirements, and fosters Palantir’s competitive advantage. On the surface, this is the kind of news investors will want to see, particularly for those who want to believe this growth can continue long-term. 

Palantir will transition its Foundry operating system workloads to Oracle Cloud Infrastructure as part of the agreement. This move integrates Palantir’s data-centric platform, Foundry, and its AI software with Oracle’s distributed cloud, extending accessibility to government and commercial users.

Strong AI Innovations

Palantir’s investments in AI have proved fruitful, evidenced by the company’s impressive growth metrics. In Q4 2023, Palantir closed 103 deals valued at over $1 million, a significant increase from the prior year’s 55. Notably, more significant deals are on the rise, with 37 surpassing $5 million and 21 exceeding $10 million, compared to the previous year’s 11 and five, respectively.

Palantir stock ended 2023 with $1.24 billion in RPO, a 28% increase from 2022. This has also reflected potential contractual commitments, promising long-term partnerships, and surging growth revenue. Palantir attributes this success to the growing adoption of its Artificial Intelligence Platform (AIP), which enables tailored AI applications for clients’ needs amid projections of a trillion-dollar AI market by 2032.

Despite its expensive valuation, Palantir’s substantial revenue and profit growth may justify the company’s market capitalization for those thinking years down the road. Palantir will certainly need to keep up the pace, or see its growth accelerate, for this to be true. But the company’s acquisition of new business has led to improved profit margins that signal potential for future earnings growth. If the stock continues to dip post-analyst downgrade, it could be an opportunity for savvy investors eyeing long-term gains in the AI software sector.

What Now?

Palantir’s AI applications drive significant growth, which is evident in Q4 2023. The fact that the company brought in 103 deals worth over $1 million is notable. This is the kind of growth that justifies the margin expansion investors have seen of late.

I think PLTR stock remains a cautious speculative buy, for AI enthusiasts looking to trade this sector. I view this stock more as a trade than a long-term hold right now, but can see the reason why investors are increasingly taking a bullish stance on this long-standing tech giant.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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