Is Palantir Stock a Buy Before 2025?

Palantir Technologies (NASDAQ: PLTR) has experienced a notable increase in its stock price, rising by 41% since November 5. This surge puts the company at the intersection of two significant stock market trends: the advancement of generative AI and the political climate surrounding the Trump presidency. In this article, we will examine how these developments could influence Palantir's prospects leading into 2025 and beyond.

AI Before It Was Trendy

Palantir has been at the forefront of big data analytics since its inception in 2003, long before generative AI became popular with the advent of OpenAI's ChatGPT in late 2022. Big data analytics involves the comprehensive analysis of large volumes of data to identify trends, patterns, and actionable insights. This technology plays a crucial role in areas such as fraud detection, workflow optimization, and threat assessment.

The capabilities of big data analytics can be seen as a precursor to large language models (LLMs) like ChatGPT. Palantir has swiftly integrated generative AI functionalities into its traditional platforms to enhance performance and provide real-time insights. Such advancements are especially beneficial to military and law enforcement clients, allowing for the quick identification of real-time threats in critical operations.

Notably, Palantir is currently utilizing AI technology to support the Ukrainian military in its targeting efforts amid the ongoing conflict with Russia. In June, the company also formed a partnership with Israel to develop combat-related technologies, highlighting its growing influence in defense applications.

The Trump Effect

The high-risk nature of Palantir's business model makes it an attractive candidate for market speculation. The rise of Donald Trump appears to have further heightened this speculation. The stock’s impressive 41% uptick since early November suggests that many investors see the new administration as a potential driver of growth for Palantir.

In its third-quarter earnings, Palantir reported generating approximately $320 million—about 44% of its total revenue—from U.S. government clients, including the Department of Defense and the Department of Homeland Security. During Trump’s previous tenure, Palantir played a vital role in shaping immigration policy, particularly in assisting Immigration and Customs Enforcement (ICE) with deportation processes. Trump's administration is expected to intensify these efforts, which could potentially benefit Palantir.

However, it remains uncertain how much Trump's agenda will truly enhance Palantir's growth prospects. The company has a software-as-a-service (SaaS) agreement with ICE called Falcon, which has reportedly brought in $127 million from 2013 to 2022, averaging just $14 million annually—a small fraction compared to Palantir's anticipated $2.8 billion in sales for the current year.

Furthermore, Business Insider has indicated that ICE is planning to replace its Falcon system with a custom-built tool known as RAVEn. This new system will use publicly available data, whereas Falcon relies on data already possessed by ICE. Additionally, while historical patterns suggest Republican presidents pursue a robust foreign policy, Trump has stated a desire to reduce involvement in conflicts such as those in Ukraine and the Middle East, leaving Palantir's military spending prospects less certain for 2025.

Evaluating Palantir's Fundamentals

In the third quarter, Palantir’s revenue grew by 30% year over year, totaling $726 million. Adjusted earnings before interest, taxes, depreciation, and amortization rose by 39% to $283.6 million. This growth is commendable, but it does not necessarily justify the company’s high forward price-to-earnings (P/E) ratio of 158. For perspective, the S&P 500 typically has a forward P/E ratio around 24, while industry leader Nvidia trades at about 30 times its expected earnings, despite a remarkable 94% growth in its most recent quarter.

As such, it can be argued that Palantir's valuation is misaligned with its actual performance metrics. Expectations surrounding the Trump administration may not provide as much of a growth boost for the company as the market currently anticipates. Thus, it may be prudent for investors to prepare for a potential correction in Palantir’s stock price by 2025.

Disclaimer: The author has no positions in any of the securities mentioned. This article does not represent investment advice.

Palantir, Stocks, AI