Palantir Applied sciences (NASDAQ: PLTR) inventory has been one of many greatest winners of the synthetic intelligence (AI) revolution to date. It’s up by a whopping 1,237% for the reason that begin of 2023!

Whereas not as dramatic, the 12-month return of 273% is nothing to be sniffed at. It means an investor who put £10,000 into the AI progress inventory one yr in the past would now have £37,300! Good.

Thoughts you, our investor would have been sitting on about £54,000 in mid-February when the Palantir share price peaked at $124. It’s at the moment at $85, which means it has plunged 31% in six weeks.

As a reminder, Palantir is a software program firm that helps governments and companies make sense of large, complicated datasets. Its latest providing, Synthetic Intelligence Platform (AIP), permits prospects to combine generative AI into their operations.

AIP is fuelling accelerating income progress, which has despatched the inventory hovering. However ought to I make investments after this 31% dip?

AI-fuelled progress

It’s unattainable to not be impressed by the corporate’s progress. Within the fourth quarter, income in its US enterprise surged 52% yr on yr to $558m, driving complete income 36% larger to $828m.

Full-year income grew 29% to $2.87bn, supported by a 54% bounce in US business income. That is necessary as a result of Palantir began out in 2003 serving to intelligence businesses analyse information to trace threats after 9/11. Then it moved into different areas of presidency, earlier than lastly pushing into the personal sector with its Foundry platform.

The business alternative, particularly in AI, seems large and Palantir is laser-focused on capturing it.

The world is within the midst of a US-driven AI revolution that’s reshaping industries and economies, and we’re on the centre of it…That is the software program century, and we intend to take your entire market.

Palantir CEO Alex Karp

The corporate’s AI boot camps are serving to potential prospects perceive how the know-how will help enhance their enterprise. The agency strikes quick from idea to real-world AI use instances, tailor-made to every organisation’s information and wishes. This helped drive its buyer rely 43% larger within the fourth quarter!

In the meantime, Palantir’s adjusted free money circulate reached $1.25bn final yr, representing a sturdy 44% margin.

Threat/reward dynamic

Clearly then, this top-notch software program firm is rising like wildfire. The sticking level for me right here although is valuation. Proper now, the inventory’s price-to-sales (P/S) ratio is a sky-high 73.

That is the kind of a number of I’d count on to see from a small progress agency, which Palantir isn’t, or one rising income by triple digits. Nonetheless, Palantir is predicted to develop its prime line by round 31% this yr then 27% in 2026. Very robust, however not spectacular when contemplating the hefty valuation.

Taking a look at 2026 forecasts, Palantir is buying and selling at a ahead P/S ratio of about 42. And the ahead price-to-earnings a number of is 108. This implies the inventory is priced for absolute perfection, which means there’s important valuation danger if the agency’s progress slows greater than anticipated.

Additionally, it appears to be like possible there might be US defence funds cuts, which is creating uncertainty. Then once more, it’s attainable Palantir’s AIP may benefit as a result of effectivity it helps unlock.

If the inventory retains falling, I’ll rethink. However I believe there are safer AI/progress shares for my portfolio proper now.