Can Palantir Ascend as the Leading AI Stock in 2024?

Securing the top position as the foremost artificial intelligence (AI) stock over the course of a year is an extraordinary task. While Nvidia held the spotlight as the premier AI stock in 2023, maintaining this position in 2024 could prove challenging. This raises the question: Could Palantir (PLTR), known for its wide array of AI products and services, emerge as the top AI stock in the upcoming year?

Palantir's Significant 2023 Performance Paving the Way

Palantir witnessed a remarkable year in 2023, with its stock nearly tripling in value. Originally focusing on government contracts, Palantir has harnessed AI to provide immediate, actionable insights—beneficial not only for military commanders and cybersecurity but for civilian applications like supply chain analysis and bank fraud prevention as well. Its achievements have not gone unnoticed, with recognition from Forrester Research for having the strongest current offering in AI and machine learning platforms.

Key to Palantir's ongoing innovation is its generative AI offering, AIP, which allows the creation of large language models using proprietary data in a secure environment—a vital feature for many of Palantir's clients.

Despite this impressive expansion and successful product line, uncertainties remain about whether Palantir's growth is sustainable through 2024.

Questions Surrounding Palantir's Valuation

Although Palantir's stock price rose significantly, its business growth, at 17% in revenue increase to $558 million in the third quarter, hasn't matched the pace, leading to a phenomenon known as multiple expansion. This is illustrated by Palantir's price-to-sales ratio, which escalated from 6.8 times sales at the beginning of the year to over 21 times later on, thereby transitioning from a relatively affordable stock to a rather pricey investment.

If Palantir can accelerate growth, the current premium may yet be justified. However, with analysts projecting a modest 20% revenue growth in 2024, the company's valuation might be difficult to warrant when compared to other less expensive AI stocks.

Therefore, considering the expected pace of growth and the existing price premium, it's unlikely that Palantir will attain the title of the top AI stock of 2024. While it has the potential to advance its AI technologies, attract new clientele, and increase its earnings, all indicators suggest that these strides may not be enough to outweigh the already high expectations built into its stock price. Investors might be wise to explore other AI-related stocks which carry a lower entry cost.

Investment in AI technology remains a dynamic and speculative field, and Palantir's journey serves as a vivid example of the complexities involved in predicting the sector's leaders. Investors should approach with caution, considering both the prospects of innovation and the realities of valuation.

AI, Palantir, Investment