Should You Worry About Palantir's Valuation?

The artificial intelligence (AI) software company has seen revenue in its commercial and government es climb in the double digits and has expertly balanced growth with fitability

On top of this, with demand for its Artificial Intelligence Platform (AIP) climbing and the overall AI market marching higher toward the trillions of dollars, Palantir's future looks bright

But one element has cast a shadow over this sunny story, and that's the stock's valuation

Should you join that camp and worry Palantir's valuation

Image source: Getty Images

Why is Palantir soaring

So first, we'll talk why Palantir has become so successful, especially in recent years

The 20-year-old company specializes in software that aggregates a customer's data and helps the customer use that data to make decisions, develop ducts or strategy, and more -- and the release of AIP two years ago added AI-driven data gathering and analysis, supercharging the software company's abilities

Work with Palantir could be game-changing for a government or commercial customer, which is one of the reasons demand has taken off in recent times

For example, mining giant Rio Tinto says that, thanks to AIP, it's accessing unstructured data and therefore handling blems that it wasn't able to handle before

The AI boom also specifically has helped Palantir's commercial growth explode higher

Traditionally, Palantir was most known for its contracts with governments -- for everything from military maneuvers to vaccine rollouts -- but in recent times, commercial companies, eager to get in on AI, have flocked to Palantir's AIP

Two key growth drivers All this means, today and down the road, that both the U

Commercial es represent key growth drivers for Palantir

Now, let's move along to the one blem that's been keeping some investors from buying Palantir stock, and that's valuation

As mentioned, it's reached an extremely high level and has been at high levels for quite some time

PLTR PE Ratio (Forward) data by YCharts But it's important to remember that other giants also have gone through periods, often in their early growth days, of high valuations

We can see this for Amazon, Apple, and Meta Platforms in the chart

And we also can see that s of each company have gained over time

AMZN PE Ratio data by YCharts So, if you refused to buy these companies because of their high valuations, you might have missed out on owning some of the world's most successful nology stocks

And valuations don't offer us a complete picture

They reflect recent earnings or estimates for the coming year -- but they don't consider potential several years down the road

Buying early or buying later Of course, valuations of these giants eventually came down to reasonable levels, and the stocks slipped from time to time, offering investors interesting buying opportunities

It's fantastic to get in on a stock in its early days and stick around for the entire growth story, but the patterns of Amazon, Apple, and Meta show us that, generally, you also can buy a quality company at a later date and still score an win if you hold for the long term

Now, let's get back to our question: Should you worry Palantir's valuation

Not if you're a long-term investor

If you buy the stock even at today's lofty valuation, as long as Palantir continues to der solid earnings, you could see your investment grow significantly over time

And if you wait to invest

Valuation may come down at a certain point, and today's biggest companies, Palantir could offer gains to long-term investors -- whether they buy the stock early on or later during this growth story

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