Shares of Palantir (PLTR) are trading almost 50% higher than they were just six months ago.
The stock is closing in on the one-year performance of NVIDIA (NVDA), the most loved stock in the market.
In the last week, shares of Palantir are trading 6% higher while the rest of the market is trying to hold on to thin gains.
I’ve already given you a great hint on “why” Palantir is blowing away the performance of other AI names, let’s get into the detail on how this stock is set to leave everyone behind.
Palantir rushed on to the scene in 2020.
The company couldn’t have timed its IPO any more perfectly to hitch its wagon to the AI craze.
Artificial intelligence was starting to hit its stride as NVIDIA had broken the mold on computing speed and efficiency with their GPUs. As a result, any company that even suggested that they had something to do with AI was snagged up by investors eager to “get in early”.
In their first five months Palantir shares went up an amazing 383%. The stock ad turned into a day traders dream. Palantir traded along with Carvana (CVNA) , GameStop (GME), Bed Bath & Beyond and other meme stocks.
Then, Wall Street analysts called shenanigans on Palantir shares. The company hadn’t produced Wall Street’s expectations for revenue and earnings. As a result, Wall Street walked away, downgrading the stock and their target prices.
That set the stock up for a terrible 2021, just ahead of the 2022 bear market. Palantir finally traded at nearly $5 in 2023 as the company finally started to show their value
Last year, Palantir started doing what Wall Street wanted two years ago. They started beating expectations for revenue and earnings.
The company widely increased their partnerships with companies like IBM and other AI service companies while signing new deals for their AI services.
Palantir is focused on healthcare and government contract deals to leverage their power as a analytics and integration AI powerhouse.
In January, the company’s business pipeline started to surge resulting in revenue and earnings results that have started blowing away the analyst expectations.
Leading to the situation that is likely to help Palantir outperform NVIDIA over the next year.
As of today, 32% of the Wall Street analysts covering Palantir have the stock ranked a “buy”. The same figure for NVIDIA is 96%.
The average analyst target price for Palantir sits at $26 and change, about 30% below today’s trading price.
Analysts target price for NVIDIA is currently $148, about 30% above today’s current price.
And there’s the opportunity for Palantir.
We call it a Wall of Worry, fear, pessimism and several other things, but that’s what drives Palantir’s performance.
Palantir shares aren’t what is considered a “crowded trade”. They don’t have the high expectations that NVIDIA, Microsoft, and other high flying tech stocks have, but that’s what’s allowing the stock to surpass the performance of those Magnificent Seven names.
Just this morning, analysts from Raymond James downgraded the stock price from a “strong buy” to a “buy”.
As of today almost every Wall Street analyst is missing the opportunity in Palantir.
The stock is trading above their average price and the majority of analysts rate shares as a sell.
That’s going to change.
As we head into the next earnings season – Palantir announces their quarterly results on November 5 – the analysts will start putting pencil to paper. They’ll figure out which stocks have been the sleepers and start to adjust their outlooks and target prices.
When this happens, we’ll see a flurry of upgrades on Palantir. Upgrades to outlooks as well as price targets.
One thing is sure, when those upgrades start hitting the tape, the crowd will start buying.
Ironically, the last time that Raymond James upgraded the stock was June 21, 2022. Palantir shares surged 18% in the five days following.
Investors should expect to see the same as shares start seeing upgrades in the coming month.
Upgrades drive prices higher, it’s that simple.
Palantir shares just crossed above the $35 level seven trading days ago. The shares are on pace to hit $40 in the coming two weeks, which puts them at the beginning of the market’s seasonally strong trading period.
Expect to see the analysts address their underweighting of Palantir in early October, driving the stock towards new all-time highs as it exceeds $45.
The market may see some turbulence in the weeks ahead of the elections in early November, but my expectations are that Palantir is one stock that is likely to shake that volatility aside.
Investors should consider the stock still “early” in its AI cycle as the AI services industry stocks are just starting to bloom.
Companies like Palantir, Salesforce.com, IBM and ServiceNow are starting to reveal the true value of AI as they matriculate its power into the market.
At its relatively low price, Palantir is a stock worth buying and holding with a long-term outlook.
More aggressive investors may consider a long-term call option (LEAPs) as a way to leverage the stock’s potential rally.
The PLTR January 15, 2027, $42 calls trade for a cost of $1,140 per contract. This contract allows the owner to buy 100 shares of PLTR anytime between now and the expiration date for $42 per share.
As an example, the theoretical value of the option would be worth $2,374 if the price of Palantir hits $60 anytime within the next year. That’s a gain of 108% with another year and a half left on the option.
For comparison, the move from its current price to $60 would result in gains of 59% on the stock alone.
As always, please make sure that you have the necessary education and experience when considering using options as an investment.
Shares of Palantir remain a long-term bullish rank (here) with a target price of $60.
