Down 7%, Should You Buy the Dip on Palantir Technologies?

Key Points

• Palantir's rapid growth in both the commercial and governmental artificial intelligence (AI) markets demonstrate the company is an early leader in the sector.

• Despite its rapid growth, there are risks to owning Palantir shares, given its high valuation.

• 10 stocks we like better than Palantir Technologies ›

Is now the time to buy Palantir Technologies (NASDAQ: PLTR) stock? That's the question many investors have right now. True, as of this writing, shares of Palantir are only 7% off their all-time high, but there haven't been many opportunities to buy this stock on a dip. It's up more than 680% over the last year and a half.

So, should investors leap at the opportunity to buy Palantir stock? Here's what I think.

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Image source: Getty Images.

Why Palantir's stock has climbed by 680%

First, let's examine what's behind Palantir's incredible run.

The company is one of the most prominent players in artificial intelligence (AI), and it is benefiting from the rapid acceleration of AI adoption -- both in the commercial and government sectors.

Palantir's Gotham AI platform is favored by many of its governmental partners, including the American intelligence community and the Department of Defense. Meanwhile, Palantir's Foundry platform has gained traction among commercial clients, who use it to integrate and analyze data, perform simulations, and gain actionable insights that improve business outcomes.

Indeed, Loop Capital recently lifted its price target for Palantir to $155, citing the company's early lead in the enterprise AI sector. Moreover, Loop also reasoned that Palantir will benefit as AI use cases grow across industries and businesses move AI systems into full production.

Turning to Palantir's government segment, the company continues to land lucrative contracts. Recently, the company announced a strategic partnership with Accenture to train 1,000 Accenture professionals on Palantir's AIP and Foundry systems. In turn, they will help deploy Palantir systems for use in various federal government agencies to increase automation and drive efficiencies.

What's ahead for Palantir?

Clearly, the bull case for Palantir remains strong. The company is riding a powerful secular trend, and its business momentum shows no sign of stopping. Indeed, the company's financials make it clear: Palantir's growth is real.

In the company's most recent earnings report (for the three months ending on March 31), the company reported revenue growth of 39%. Net income for the quarter increased to $214 million. What's more, the company increased guidance. Management now expects full-year 2025 revenue to reach almost $4 billion. For context, Palantir generated less than $2 billion in revenue as recently as 2023.

Adding to this financial strength, Palantir has a rock-solid balance sheet. The company boasts over $5 billion in cash and no net debt. As for cash flow, the company has generated over $1.3 billion in free cash flow over the last 12 months. That gives management the ability to keep growing the business without the need to raise capital.

Nevertheless, there are risks to owning shares of Palantir. Most prominent, perhaps, is the stock's high valuation. Shares sport a gaudy price-to-sales (P/S) ratio of more than 100x. That's far above the market average, which is closer to 3x. Any earnings, revenue, or guidance miss could send Palantir shares tumbling.

In addition, Palantir's government links are coming under increased scrutiny, with some lawmakers demanding that the company provide details on its work with agencies that handle highly sensitive citizen data, including the Social Security Administration and the Internal Revenue Service.

All that said, the AI genie is not going back into the bottle. Government agencies, corporations, and nonprofit organizations are all racing to implement AI-powered systems because of the enormous benefits they offer. While Palantir stock remains volatile -- and isn't suitable for every investor or portfolio -- long-term growth investors would be wise to accumulate Palantir shares now, when its price has pulled back from recent highs.

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Jake Lerch has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Accenture Plc and Palantir Technologies. The Motley Fool has a disclosure policy.