What are the most resilient AI Concept stocks? How is the outlook for Palantir?

$Palantir(PLTR.US)$ Incorporating two major concepts of military and artificial intelligence, it is one of the popular stocks that the market is focused on. The company is about to be included in the S&P 500 Index, which is scheduled to take effect on September 23.

After hitting bottom in 2022, the company's stock price has continued to rise, rebounding by 167% in 2023, and has also achieved a doubling increase this year. Since the market correction began in August, Palantir has also shown considerable resilience. Since August 5, the company's stock price has risen over 40%, standing out in the AI Concept sector. Can this momentum continue? This week's 【Opportunity Express】 will take another look at this company.

Crossing both political and business circles.

Palantir was founded in 2003, with its name derived from the crystal ball that foretells the future in Tolkien's "The Lord of the Rings" series. One of the founders of PayPal, Peter Thiel, is a co-founder of the company, and many employees from the founding team also have a PayPal background.

Palantir is known for big data analysis, but unlike most Saas companies, it offers highly customized products. Its early major clients primarily came from the government and military. Notable cases include helping the military successfully locate and kill Al-Qaeda leader Osama bin Laden, as well as assisting law enforcement in unraveling the Madoff Ponzi scheme involving up to $65 billion.

Afterwards, the company's business expanded from government work to the commercial sector. In 2016, Palantir released a data platform for enterprise users, and revenue from the commercial sector has been steadily increasing. As of the second quarter of 2024, the company's revenue from the government accounted for 54.7%, while the commercial sector accounted for 45.3%, indicating a balanced distribution.

Palantir has also actively participated in the AI wave. In April 2023, the company launched its Artificial Intelligence Platform (AIP), aimed at combining artificial intelligence with big data analysis to help government agencies and businesses handle data, set up processes, and make intelligent decisions more efficiently.

Wedbush stated that AIP has already driven business growth and is expected to gain more momentum in government channels. As more customers seek to add AI features, Palantir will continue to achieve a large number of transactions with the support of AIP, which is just the beginning of a multi-year cycle.

High growth, high valuation.

Palantir released its second-quarter Earnings Reports in August. Total revenue for the second quarter of 2024 was $0.678 billion, a year-over-year increase of 27.2%, while the market expectation was $0.652 billion. EPS was $0.06, an increase of 500% year-over-year, with market expectations at $0.03. At the same time, the company raised its 2024 total revenue guidance range to $2.74 billion to $2.75 billion.

Management stated during the Earnings Reports conference that there have been many doubts during the company's development process. Some believe Palantir will never be profitable, while others firmly claim it cannot effectively expand its revenue. However, the company has achieved profitability for seven consecutive quarters, and the AIP platform is driving accelerated performance growth.

It is important to note that the company's valuation is also much higher than its peers. SaaS companies typically use Price to Sales (PS) for valuation, and Palantir's current PS ratio is as high as 32.15, placing it in the 75th percentile historically, while the industry average is 9.69.

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Data source: Futubull. Data as of market close on September 13, 2024. The content of this chart is for reference only and does not constitute any investment advice. Past performance does not predict future results, the market has risks, and investments should be cautious.

Mizuho Analyst stated that Palantir's performance would warrant such a high valuation only after it has more sustainability. Investment bank Monness, Crespi, Hardt & Co. also believes the company's outlook is healthy, but the recent "AI frenzy" has pushed it to an absurd position.

Technical analysis and possible strategy.

Palantir has been in an upward channel since the restart of its rise, and recently, driven by its entry into the S&P 500 Index, the stock price has broken through the upper bound of the channel. After the integrity of the channel is breached, the market may further develop in the direction of the breakthrough.

Generally, when the price breaks above the channel line, it can be seen as a bullish signal. However, the potential risks of breakout trading are greater, as the market may issue false breakout signals; it may also be considered to wait for the market to pull back and confirm the effective breakout before entering.

Data source: Futubull. Data as of the market close on September 13, 2024. The case is for illustrative purposes only and does not constitute any investment advice or guarantee.

The options volatility analysis tool shows that as of the market close on September 13, Palantir's implied volatility is relatively low. Typically, significant company news or major market events (such as Federal Reserve meetings) can cause an increase in volatility, and the company's entry into the S&P 500 Index at the end of the month could also lead to increased volatility.

Implied volatility values, IV rankings, and IV percentiles are theoretical estimates; actual market conditions may not always align with the theoretical information shown. Investors should act cautiously when making investment decisions and use multiple sources of information, as there is no guarantee that using tools or information provided on the Futubull application will lead to investment success or reduce investment risk.

In a risk-neutral situation, low implied volatility indicates that the premium is relatively low, theoretically favoring the options buyer. If the company's development is viewed positively, buying call options (Long Call) could be considered. If a pullback is anticipated, buying put options (Long Short) could be an option.

Additionally, if it is difficult to determine the direction of volatility but volatility is expected to increase, one might consider employing a Long Straddle or Long Strangle strategy.

Of course, the risks associated with options are higher than those of the underlying stocks, and volatility is also greater. Interested investors are advised to learn relevant knowledge systematically before attempting.

Related Risks

Intensified competition: Currently, Palantir's main competitors include $C3.ai(AI.US)$ and $Snowflake(SNOW.US)$ . Earlier this year, Palantir competed with C3.ai for the U.S. Army's TITAN project, ultimately securing a large contract worth $0.178 billion. Snowflake primarily provides big data services to enterprise users.

Customer concentration: A significant portion of the company's revenue comes from large clients, especially from government departments. MorningStar indicates that, despite being in the commercial sector for many years, customer acquisition rates remain relatively low, with the number of commercial clients just slightly above 200.

Risk Disclosure: This content does not constitute a research report, is for reference only, and should not be used as the basis for any investment decision. The information contained herein is not a comprehensive description of the securities, markets, or developments mentioned. Although the sources of information are considered reliable, the accuracy or completeness of the above content is not guaranteed. Furthermore, there is no guarantee regarding the accuracy of any statements, viewpoints, or forecasts provided in this article.

Options trading carries a high risk and may not be suitable for all investors. The characteristics of options can lead to losses exceeding the principal. Before trading options, please read our "U.S. Options Product Disclosure Statement," "U.S. Options Target Market Confirmation Letter," and documents published by the Options Clearing Corporation (OCC) regarding the "Characteristics and Risks of Standardized Options."