Palantir stock is collapsing, but for a reason that may surprise you (hint: it’s not because of the artificial intelligence race)

The expectations for artificial intelligence (AI) are indescribable. In particular, technology stocks soared in 2023, helping the economic recovery. Nasdaq Composite 43%.

Last year, a group of smaller mega-cap technology companies collectively known as the “Magnificent Seven” played a key role in expanding the market. But as the AI ​​revolution progresses, numerous other opportunities are emerging outside of big tech.

stock Palantir Technologies (PLTR -0.52%) Palantir’s stock price soared 167% last year. Moreover, Palantir’s stock price rose 36% this year before announcing its first quarter results on May 6.

But Palantir’s stock price has surged 18% since the company’s earnings report in early May.

Is now the time to buy the dip, or could Palantir be a falling sword? Let’s look at the volatility of the stock price and evaluate the company’s earnings report.

Let’s take a closer look at stock price movements.

The chart below shows Palantir’s stock price movement in the two weeks leading up to its first quarter earnings report.

PLTR data from YCharts

11% may not seem like much, but that’s a very dramatic move in a short amount of time. During the same period, the overall Nasdaq index moved only 4.6%. Moreover, from January 1 to May 3, the Nasdaq index rose 7.6%.

Considering that Palantir stock has surpassed Nasdaq’s year-to-date performance in just two weeks, it suggests there is a deeper meaning.

That said, sometimes a stock may start showing momentum before an earnings report is released. There are many reasons for this, but such large trading activity is not warranted in most cases.

Moreover, momentum stocks often carry risk because day traders can enter and exit positions in an instant.

Image source: Getty Images.

My expectations are sky high.

Last year, the stock market was greatly impacted by the massive investments technology companies made in AI. That said, a lot of the AI ​​talk has been reflected in software stocks in particular. Even though many of these companies have yet to show much about their AI investments.

In April 2023, Palantir launched its fourth major software product, the Palantir Artificial Intelligence Platform (AIP). Since its launch, Palantir has sparked a wave of new customer acquisitions, fueling impressive levels of revenue growth.

There’s a lot of hype surrounding AIP, and Palantir has proven it can compete with big tech at a high level. Moreover, considering that less than 50% of Palantir shares are held by large institutions, I think it’s clear that the company has become a fan favorite in the retail investor community.

Palantir continues to evolve across its businesses. In the quarter ended March 31, Palantir’s revenue rose 21% year-over-year to $634 million.

The company also expanded its operating profit margin from 24% in the first quarter of 2023 to 36% at the end of the first quarter of this year. The combination of accelerated sales and surging margins has helped Palantir achieve consistently positive net income and free cash flow.

Despite these positive indicators, Palantir stock has plummeted and is still declining. Excitement about the company’s AI advancements has led to a temporary increase in purchasing activity. However, investor expectations have reached a level that is far from reality.

To be honest, Palantir’s current price action is showing signs more like a meme stock right now.

Is now a good time to invest in Palantir stock?

Despite some of the stock’s quirky characteristics, there are plenty of reasons to invest in Palantir.

AIP has proven to be a new source of growth for Palantir, especially in the private sector. During the first quarter, the company’s number of U.S. commercial customers increased 69% year-over-year. In addition, in terms of strategic partnerships, we are pursuing advancement with big tech.

Palantir recently trust Bring data loads to Oracle’s cloud infrastructure. I believe this is a profitable source of lead generation and one that has not yet been recognized in Palantir’s current results.

PLTR PS Ratio Data from YCharts

Palantir stock trades at a premium compared to many of its enterprise software peers and even some of the larger tech AI companies, with a price-to-sales (P/S) ratio of 20.7. While this shows that Palantir stock isn’t incredibly cheap, the trend seen in the chart above shows that Palantir’s valuation multiple has become more normalized thanks to the selloff.

Even if Palantir stock is a little expensive, I would still consider buying it. The company has made notable progress over the past year, and surging revenues and profits present Palantir a unique opportunity among high-growth AI software businesses.