What Happened:
Shares of data-mining and analytics company Palantir (NYSE:PLTR) jumped 8.8% in the afternoon session on sustained momentum following the company's strong earnings results, which highlighted the growing demand for its AI solutions. In addition, the major indices are advancing, with the S&P 500 set to cross 5,000 points for the first time. The Nasdaq is up 1%, while the Dow Jones index rose 0.55% as stocks continued to report earnings. The earnings season has been good thus far, with positive reports from tech giants including Microsoft, Amazon, and Meta. These encouraging prints should likely help sustain growing optimism stemming from the expectations for positive gains in 2024, especially for AI-related stocks. Also, there are hopes that the Fed will begin cutting rates in the first half of 2024, which should help ease business conditions.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. No wonder so many in the investment community are optimistic about 2024. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
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What is the market telling us:
Palantir's shares are very volatile and over the last year have had 43 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was one day ago, when the stock gained 28.5% on the news that the company reported fourth-quarter results with expectations for revenue growth to accelerate in the next fiscal year, highlighting growing demand for its new artificial intelligence platform (AIP), which was launched in 2023. It is also encouraging to learn that the company has improved the time it takes to deploy AIP and integrate with client's data from "weeks and months to as little as a few hours." The icing on the cake is adjusted operating income well above expectations, showing that the company is not sacrificing profits for the higher topline growth. Also, its revenue, billings, and free cash flow exceeded Wall Street's expectations in the quarter, and its gross margin improved. Notably, the US commercial business significantly contributed to the solid performance during the quarter, as revenue in the segment grew 70% year on year and 12% sequentially. Looking ahead, the company expects the US commercial business to grow at least 40% in 2024. A minor negative was that revenue guidance for the next quarter missed analysts' expectations. Overall, this was a very solid quarter for Palantir.
Palantir is up 42.6% since the beginning of the year. Investors who bought $1,000 worth of Palantir's shares at the IPO in September 2020 would now be looking at an investment worth $2,488.
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