Investing

Is Peter Thiel's Favorite Company Still a Buy?

Chris MacDonald

Published: October 13, 2024 8:10 am

Peter Thiel is among the most prominent founders and investors among the younger generation. The Palantir Technologies (NYSE:PLTR) founder has certainly diversified his investments, investing into a number of profitable growth companies providing innovation to the markets, continuing his vision of creating a more equitable future.

However, it’s true that the Palantir founder has remained a large stakeholder in the company, benefiting from the stock’s recent addition to the S&P 500 and other key catalyst that have propelled this AI beneficiary higher. 

currently, Thiel holds around 223.6 million shares of PLTR stock, valued at around $7.7 billion, making him the company’s largest shareholder. And with the stock’s recent surge higher, Thiel’s net worth continues to grow as he holds his position and continues to bank on the market sending shares of his company higher.

Let’s dive into whether this is a stock with a bull thesis that’s solid enough to withstand potential volatility on the horizon, or whether Thiel may be better off selling shares in this highly-valued AI play before the rubber meets the road. 

Key Points About This Article:

• Palantir founder Peter Thiel remains the company’s largest shareholder, and has been a key beneficiary of the stock’s recent impressive move.
• Now, the question is whether this stock is poised for more upside ahead, or if Mr. Thiel should consider diversifying his portfolio further. 
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Strong Performance This Year

The AI revolution is clearly still underway, but a number of notable top names in the AI space have lost some steam of late. However, Palantir has seen a more than 130% surge in its valuation over the past year, and has seen some strong recent momentum build up as well.

Impressively, much of this strong performance can be directly tied to fundamentals. Palantir continues to post quarter after quarter of positive earnings, driven by strong customer retention and acquisition metrics in part tied to the company’s AI products. 

Palantir got its start providing big data analytics software to the U.S. Department of Defense and intelligence agencies amid the global war on terror. Competing against legacy products, the company secured numerous contracts, achieving $278 million in U.S. government revenue last quarter. 

However, the company’s commercial division has blossomed thanks to the company’s expansion of its AI products. Last quarter, commercial revenue rose 33% year-over-year to $307 million, and the customer count increased by 41%. This “land and expand” model is expected to yield consistent revenue growth over time.

A Key Collaboration Worth Paying Attention To

Palantir Technologies and Edgescale AI recently partnered to launch Live Edge, integrating Palantir’s Edge AI with Edgescale’s infrastructure tech. The collaboration focuses on deploying AI in manufacturing and industrial sectors. If successful, many bulls on Palantir point to strong future growth potential and higher margins tied to the scalability of this approach for key sectors that really don’t get a lot of love in the AI discussion.

I think Palantir’s expansion efforts are really paying off, and the market has clearly rewarded the stock accordingly. Of course, the question is whether paying 35-times sales for this growth makes sense. In Thiel’s mind, that multiple appears to be fine, so long as the company can provide a solid pathway toward both top and bottom line growth in combination with margin expansion.

I think that’s the key here. The company has secured a number of new multi-million dollar contracts, and its backlog is growing. But growing in a profitable way will be what the market wants to see. As of late, this has been the case, and Palantir has been rewarded commensurately. 

Strong Momentum and Upside Potential Could Make This Stock a Buy

I’m not going to sugar coat it, I think Palantir is an AI stock that carries plenty of risk. One look at the stock’s current multiple, and a few value investors will certainly faint.

But I’m also someone who’s been wrong on this company in the past, and in particular its ability to turn its AI products into meaningful revenue and earnings growth. Palantir has done that, and looks like it’s on the right trajectory. 

The company’s core analytics services are invaluable to a range of  commercial and government clients, and with strong growth on both fronts, I think Palantir could be a momentum play near-term investors can consider on pullbacks.

Over the long-term, I’m going to need to see a lot more growth from Palantir to back up its valuation. Sure, anything’s possible, and the market appears to think Palantir can pull it off. But outside of shorter-term momentum investors, this is a stock I think investors may want to be careful with at current levels.