Palantir Technologies (PLTR 11.03%) jumped again on Wednesday, adding to its growing win streak. The stock was up as much as 12.3% in early trading and as of 1:50 p.m. ET was still up 11%.
While the upward trajectory of the broader market no doubt helped fuel the gains, the clear catalyst that sent the data mining and artificial intelligence (AI) specialist higher was news the company beat out the competition for a major Army contract.
Palantir was awarded a contract worth $178.4 million to deliver 10 Tactical Intelligence Targeting Access Node, or TITAN systems, which use sensor data to locate targets. However, the contract could be much more lucrative. As my colleague Lou Whiteman pointed out, the initial 10 systems could lead to 100 to 150 more.
The company has a long history of providing AI solutions to the U.S. government and its allies, so this is just the latest in a long line of contract wins.
Is Palantir Technologies stock still a buy?
While this news is welcome, investors should be more excited about another aspect of Palantir’s business. The company adapted its existing AI systems to serve the needs of enterprise businesses. The ability of AI to detect patterns buried deep in data has vast implications for large companies. It can help manage inventory levels, suggest product revisions, or detect troubling trends in customer service calls, among many other applications.
The advent of generative AI is right up Palantir’s alley, and the company quickly developed a solution to address the increasing demand. In the fourth quarter, this boosted results, as U.S. commercial revenue grew 70% year over year, while its total contract value soared 107%.
Palantir Technologies stock has gained a whopping 215% over the past year and is already up 55% year to date. As a result, traditional valuation metrics look stretched. The stock is selling for 80 times forward earnings and 22 times forward sales, but that doesn’t factor in Palantir’s impressive growth. Using the more appropriate forward price/earnings-to-growth ratio reveals a valuation of less than 1, the standard for an undervalued stock.
If the demand for AI continues to grow, and I believe it will, Palantir’s experience in the field could reap big rewards for the company — and its investors.
Danny Vena has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
