Should You Buy Palantir Technology Stock Before Aug. 4?

Key Points

• Palantir is taking the high ground in the artificial intelligence (AI) software revolution.

• The company has delivered nine consecutive quarters of accelerating revenue and profit growth thanks to its state-of-the-art AI solutions, and shows no signs of slowing.

• Its pricey valuation might send some investors packing, but its growth story will play out over the next decade.

• 10 stocks we like better than Palantir Technologies ›

The advent of artificial intelligence (AI) several years ago sparked a paradigm shift in technology that will likely continue for the next decade. Generative AI has the potential to streamline processes, increase productivity, and drive more profits to the bottom line. This has large and small businesses alike eager to join the AI revolution, but many simply don't know how to get started.

Palantir Technologies (NASDAQ: PLTR) recognized the need and responded accordingly. The company developed a system designed to provide real-time, data-driven solutions while providing companies with a way to get started, and the results speak for themselves. The stock has gained 421% over the past year (as of this writing) and is up 1,890% since AI went viral in late 2022.

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The company faces a key test with investors when Palantir reports its second-quarter results after the market close on Aug. 4. Given the stock's blistering returns over the past year, should investors buy Palantir stock ahead of this crucial financial report, or wait until after the results have been made public? Let's see what we can learn from the available evidence.

Image source: Getty Images.

AI before it went viral

While generative AI has been all the rage over the past couple of years, Palantir has been developing data mining and AI solutions long before it became fashionable. The company worked in relative obscurity for years, designing AI-powered solutions for U.S. intelligence agencies and other federal departments.

After establishing itself as the gold standard for government AI solutions, Palantir turned its attention to corporate America and created a platform that could devise elegant solutions to everyday business problems. By connecting siloed business software systems through a central dashboard, Palantir created a system that provides data-driven intelligence and actionable insights. The company's most recent brainchild, its Artificial Intelligence Platform (AIP), leverages company-specific information to craft custom solutions.

Many business executives are keen to benefit from the windfall of AI, but have no idea how to implement the appropriate systems. That's where Palantir comes in. Business executives and developers are partnered with Palantir engineers to create solutions for their most pressing issues. "These immersive, hands-on sessions allow new and existing customers to build live alongside Palantir engineers, all working toward the common goal of deploying AI in operations," Palantir said.

Its success is irrefutable. In the first quarter, Palantir's revenue grew 39% year over year, while adjusted earnings per share (EPS) jumped 63%. That's only part of the story. Palantir's U.S. commercial revenue -- which includes AIP -- surged 71%, while the segment's customer count climbed 65%. Additionally, the segment's remaining deal value (RDV) -- which provides a glimpse into the company's future growth trajectory -- soared 127%.

It's also worth noting that each of these growth rates is accelerating. Furthermore, sales and profits have ratcheted higher for nine consecutive quarters, with no signs of slowing.

Wall Street's (short-term) view

The stock's parabolic run over the past few years has kicked its valuation into the stratosphere. Palantir is currently selling for 255 times forward earnings and 90 times forward sales, which most investors would concede is a pricey valuation, and Wall Street seems to agree.

Of the 25 analysts who offered an opinion on Palantir in July, only four rate the stock a buy or strong buy, while 16 recommend holding, and five rate it underperform or sell. That means 84% of analysts don't believe Palantir is a buy right now.

However, it's important to point out that Wall Street analysts tend to focus on the next 12 to 18 months. Given that Palantir's growth story is expected to play out over the next decade or longer, the two views are at odds.

Furthermore, those disparate opinions can both be right: In the short run, Palantir stock could fall or enter a period of multiple compression, in which the fundamentals continue to improve while the stock remains range-bound. It could also be a massive winner over the next decade for investors with the intestinal fortitude to hold through the volatility that's sure to come.

Focus on the long-term

Given the current environment and the unresolved issues of inflation and tariffs, it's easy to imagine executives delaying unnecessary spending. That said, the economic uncertainty could be a catalyst for Palantir, according to Ark Investment Management CEO Cathie Wood. "When businesses and consumers are scared, they'll change the way they do things, and that's usually good for the companies that are helping others do things better, cheaper, faster, more creatively, and more productively," she said.

Wood believes Palantir's proprietary solutions position the company well for the continued adoption of AI. "We think Palantir is going to be one of the biggest beneficiaries as companies try and make themselves more efficient and move into the AI age," she said, "You've got the C-suite really trying to figure this out, understanding strategically that if they don't jump into the AI age, they'll be left behind."

There's more. In a post on X (formerly Twitter) on Saturday, Wood said (emphasis mine), "CEO Alex Karp believes that [Palantir] will become the largest pure-play enterprise AI software company in the world. I believe him."

Image source: Getty Images.

Should you buy before Aug. 4?

As a general rule, I shy away from date-driven stock buying. I tend to be more successful when I take a step back and view the company's execution, competition, and market opportunity holistically.

Palantir's execution thus far has been stellar. The company's unique approach will make it hard for would-be competitors to replicate Palantir's results. It's difficult to accurately size the market opportunity for AI, and estimates vary wildly. In Ark Invest's Big Ideas 2025 report, Wood calculates that the AI software opportunity alone could be worth $13 trillion by 2030.

There's a lot to like about Palantir, and I have purchased the stock several times in recent years. In most instances, valuation isn't something I consider, but it's hard to ignore in the case of Palantir. That said, I still believe the stock is worth owning -- as long as investors know what they're getting into.

Palantir comes with extraordinarily high multiples. That, combined with the company's rapid growth, is the very recipe for extreme volatility. I'd be comfortable predicting that, at some point over the next 18 months, Palantir stock will likely plunge by 50%.

Does that mean I plan to sell the stock? Not at all. It simply means I'm prepared for the inevitable ups and downs that are part of the cost of admission for owning a high-growth stock such as this.

Those disclaimers aside, investors looking to establish a position in Palantir should consider a small position and add opportunistically on any weakness. Dollar-cost averaging is another potential strategy, as it allows investors to build a position over time, adding more shares when the price is lower and fewer when the valuation is higher.

I stand by the assertion that being a Palantir shareholder isn't for the faint of heart. That said, for those who adopt a long-term outlook and can withstand the inevitable volatility, I expect it to be a profitable investment 10 years from now.

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Danny Vena has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.