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PLTR stock has surged more than 21% on Thursday following its Q3 earnings beat.
Revenue and adjusted earnings in the quarter both beat consensus by a slight margin.
Q4 outlook entices traders as revenue forecast is raised to a midpoint above $600 million.
The artificial intelligence platform company grew its customer base by 34% from a year ago.
Palantir (PLTR) stock soared 21% after the artificial intelligence (AI) platform business slightly topped Wall Street consensus for the third quarter and issued an upbeat forecast for the fourth quarter.
The price action is certainly upsetting some short sellers as Palantir stock was named by Goldman Sachs in mid-October as one of the most shorted stocks heading into earnings season.
The market on Thursday is continuing this week’s theme of a rebounding market following three months of a broad downtrend. The S&P 500 and NASDAQ Composite have each advanced above 1% at the start of the session.
Palantir earned $0.07 per adjusted share in the third quarter. That amounted to one penny above the Wall Street consensus.
Revenue also beat estimates at $558 million in the quarter, $2 million higher than the general forecast.
For the third quarter, Palantir witnessed a 23% YoY growth in revenue from commercial operations, its smaller segment. Its primary government business registered a more steady 12% sales growth figure.
The Colorado-based company raised its customer count by 34% from a year ago, demonstrating that its AI products are still seeing major uptake among new clients.
Palantir also raised its forecast for the fourth quarter, which is probably the primary reason the stock has rallied so much. The AI-inflected firm’s management said it expects revenue between $599 and $603 million, with the midpoint nearly $2 million above the prior consensus. Adjusted income from operations is expected to clock in at a midpoint of $186 million.
For the full year, Palantir expects revenue between $2.216 billion and $2.22 billion and adjusted income from operations at a midpoint of $609 million.
What is artificial intelligence?
First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.
What are AI applications?
There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.
What are some stocks that fit into the AI field?
Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.
Could artificial intelligence generate another stock bubble?
Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.
Palantir stock has made it above the $18 threshold. This is the price level where PLTR stock began experiencing resistance back in mid-October. A close above this $18 level will give bulls the chance of retesting the $20.24 from August 1.
Previous to August 1, Palantir stock last reached that level in December of 2021 during the covid rally. PLTR stock is still technically in a downtrend until the 9-day Simple Moving Average (SMA) breaks above the 21-day SMA. At the moment, there is a $1 space between the moving averages.
Since June, the $13.50 to $14 region has acted as strong support, so traders should not expect a decline below that price band in the near future.
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