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Palantir (NASDAQ:PLTR) stock fell 16% in the S&P 500 in November, marking its worst month for over two years.
However, had an investor taken advantage of that dip back in August 2023, they would have made more than 10 times their money, even after November’s pullback. Nice.
I’ve been looking for an opportunity to add Palantir to my Stocks and Shares ISA for quite a while now. But it has just marched higher and higher, rarely pausing for breath.
Has November provided me with the perfect opportunity?
What the firm does
Palantir’s software pulls huge amounts of messy data into one place and makes it useful. Governments use it for defence, intelligence, and security. Businesses use it to improve margins, by optimising supply chains, detecting fraud, forecasting demand, and much more.
Put simply, Palantir builds data-analysis software that helps big organisations make better decisions.
But the company’s newest product — Artificial Intelligence Platform (AIP) — has truly catapulted the company into the big league. AIP integrates generative AI into private enterprise data, and this is fuelling truly enormous growth.
This year revenue is expected to surge around 54% to $4.4bn, with US commercial revenue more than doubling, driven by AIP demand. Customer count grew by 45% in Q3 alone!
Full-year adjusted free cash flow will total approximately $2bn, showing how financially powerful Palantir’s model is.
Looking further out, Wall Street expects revenue to exceed $8bn in 2027, with more than $3bn in free cash flow generated.
AI jitters
The stock was caught up in the AI-related sell-off last month. Chip giants Advanced Micro Devices and Nvidia fell 15.1% and 12.6%, respectively. Meanwhile, shares of AI cloud computing firm CoreWeave plummeted 45.3%.
Investors have started to worry about valuations. And even after the 16% drop, Palantir stock trades at 107 times sales and 167 times forward earnings. Given this sky-high valuation, the stock is very vulnerable during any market sell-off.
There was also Michael Burry’s recent high-profile bets against Nvidia and Palantir. He contends that we’re in an AI bubble, no different to the internet one around the turn of the millennium.
Ending last month’s Q3 earnings call, combative CEO Alex Karp fired back at the critics: “Please turn on the conventional television and see how unhappy those that didn’t invest in us are, enjoy, get some popcorn, they’re crying. We are every day making this company better, and we’re doing it for this nation, for allied countries“.
Dip-buying opportunity for my ISA?
Palantir is obviously a world-class company with hundreds of blue-chip customers, including Airbus, Walmart, Pfizer, the NHS, FBI, and CIA.
In November, it signed new deals with consulting firm PwC, FTAI Aviation (aircraft engine maintenance), AI upskilling platform Multiverse, and Valoriza (a Spanish environmental services company).
My issue here (still) is the valuation after the stock’s 122% year-to-date surge. Buying shares that are trading around 100 times sales is rarely a good idea, no matter how good the underlying business is.
Therefore, I’ll focus my attention elsewhere for now, while keeping Palantir on my watchlist. I’m waiting patiently for a valuation that seems even more attractive.
