Many tech stocks, including Palantir Technologies, have rallied significantly because of the artificial intelligence spending boom.
The company’s shares have rallied 35% year-to-date, substantially outperforming the S&P 500’s 9% return. However, most of Palantir’s market-beating gains have come since the company reported its fourth-quarter earnings, likely surprising those who thought that most of the upside from AI had already been reflected in share prices.
One analyst who wasn’t shocked by Palantir’s recent rally is TheStreet Pro’s Bruce Kamich. In February, before CEO Alex Karp impressed investors with better-than-expected revenue, he said, “Palantir is looking bullish ahead of earnings,” setting a price target of $22.
Palantir went on to eclipse Kamich’s target, and on March 4, the Peter Thiel-founded company announced a new agreement to collaborate on AI solutions with cloud service provider Oracle.
Given Palantir’s rally and the potential to profit from this new deal, Kamich revisited his analysis and set a new stock price target for Palantir that will likely raise eyebrows.
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Palantir’s sales driven by AI tailwinds
Palantir stock price performance has been supported by a debt-free balance sheet, improving free cash flow, and profit growth.
The company’s revenue has experienced tailwinds because of surging AI activity after the successful launch of OpenAI’s ChatGPT in December 2022.
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ChatGPT was the first large language model AI app to become widely available, and its ability to quickly search, parse, and create content made it the fastest app to reach 1 million users.
The rapid adoption of ChatGPT uncorked significant interest from enterprises and governments interested in AI solutions, including generative AI programs, to improve business processes and practices, and unlock insights from previously siloed data.
AI activity has become so prevalent across most industries that comparisons are being made to the dawn of the Internet Age in the 1990s.
Financial institutions like JP Morgan have deployed AI programs to hedge risks, evaluate loans, and price products. Healthcare companies are evaluating if it can be used to predict drug targets and clinical trial success better. Manufacturers are determining if it can increase production and quality. AI may also help retail stores anticipate sales trends, manage inventory and stop theft. The U.S. government is even considering whether AI can be useful on the battlefield.
AI’s potential is seemingly endless, and many are turning to Palantir’s (PLTR) expertise in managing and protecting data to train and run new AI apps.
In the past, Palantir’s sales were largely driven by helping the U.S. government with its counterterrorism efforts. The company still generates significant sales from the U.S. and its allies. But it’s also pushed more deeply into managing, interpreting, and reporting data for large companies.
Those relationships position it perfectly to assist businesses and government entities with designing AI solutions using its AI platform (AIP).
“The demand for [Artificial Intelligence Platform] AIP is unlike anything we have seen in the past twenty years,” said Karp last summer. “We are currently in discussions with more than three hundred additional enterprises to deploy AIP within their organizations, all of which are searching for an effective and secure means of adapting the latest large language models for use on their internal systems and proprietary data.”
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Thanks partly to those discussions, which have led to increasing use of its platform, Palantir’s year-over-year sales growth has eclipsed 20% for three consecutive quarters, resulting in double-digit earnings per share growth.
Revenue totaled $736 million and earnings per share were 9 cents in the fourth quarter, up 21% and 16% from the previous year.
The top and bottom line strength is likely to continue. Wall Street analysts’ consensus estimate for earnings in 2024 and 2025 is 33 cents and 39 cents per share, respectively, up 34% and 17%.
The new deal with Oracle (ORCL) to jointly sell cloud and AI services could open up the use of Palantir’s AIP to more users, further driving sales and earnings growth.
Oracle is one of the top 10 largest cloud providers, and its position as a multi-decade leader in data management means it has a global reach.
Palantir price charts signal new target
Kamich is a technical analyst who has used price, volume, and technical analysis indicators to navigate stocks and markets for over 50 years. His interpretation of Palantir’s charts is behind his correct forecast in February that its shares could climb.
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To gain insight into what may happen next, he updated his analysis of Palantir’s charts on April 4.
Overall, Kamich came away impressed.
“Share prices have been on an upward-trading path for the past 12 months. The shares made a high in early March and pulled back to the rising 50-day moving average line. The slower-to-reaction 200-day moving average has a positive slope and intersects down around $18,” said Kamich. “The On-Balance-Volume (OBV) line is in a longer-term advance but has been stalled the past two months, suggesting a balance between bulls and bears. The Moving Average Convergence Divergence (MACD) stands just slightly above the zero line.”
On-balance volume is essentially up minus down day volume, while MACD is a momentum indicator. Ideally, Kamich would like to see more up-day volume as shares are rising with positive momentum.
Palantir’s share price has retreated from a peak above $27 in early March, but down-day volume doesn’t appear to be dwarfing up-day volume. Nearly all the stock’s down days in the past month have occurred on lower-than-average daily trading volume.
Kamich updated his price targets using point-and-figure charts. His new $48 target price is enticing given it’s more than double where shares are trading currently.
“If Palantir continues to trade mostly above $22 it should look like it is building a base for another move higher,” concluded Kamich.
Kamich would rethink his outlook if Palantir closes below $18.
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