AI Partnership Boosts This Top Tech Stock: Ready for More Gains?

Key Points

• Palantir stock is up 68%, making it one of the best-performing stocks in the first half of the year.
• It’s outperformed every Magnificent 7 stock not named NVIDIA.  
• The stock is objectively overvalued, but recent developments suggest that PLTR stock may have room to move higher.  

Palantir Technologies Inc. NYSE: PLTR is up 68% through the first half of 2024. That makes it not only one of the best technology stocks of the year but also one of the best-performing stocks in the market period. And with the market still showing a lack of breadth, it’s noteworthy that PLTR stock has outperformed every Magnificent 7 stock except NVIDIA Corp. NASDAQ: NVDA. 

However, as every investment prospectus says, past performance does not guarantee future performance. Palantir has a loyal band of followers but seemingly an equal number of critics. Those naysayers will point to the stock’s 171x forward price-to-earnings (P/E) ratio and a price-to-sales (P/S) ratio of 27 to prove that Palantir is overvalued.  

The only question that matters now is whether PLTR stock has room to move higher. Some recent developments suggest the answer may be yes.  

A Partnership with Oracle Marries Cloud Services with Palantir's AI Platform

On July 9, Oracle Corp. NYSE: ORCL announced it would be using Palantir’s Foundry and Artificial Intelligence Platform (AIP) on its Oracle Cloud Infrastructure (OCI). This combination will allow businesses and governments to accelerate their AI initiatives.  

One noteworthy reason this is significant for Palantir is that Oracle has over 300,000 customers that can now access Palantir’s software. And many of those are in the private sector. A common criticism of the company is that it’s too reliant on government business (which makes up about 53% of its revenue). 

The Company Keeps Winning with the U.S. DOD 

However, just because Palantir is growing its commercial business doesn’t mean that its government business is in danger of slowing down. In May, the U.S. Department of Defense (DOD) Chief Digital and AI Office awarded the company a $153 million contract to license its AI-enabled operating system. However, the contract may be worth up to $480 million in the next five years. 

This is only the latest military contract that Palantir has received. In April, Palantir was awarded a $9.8 million contract from the Defense Information System Agency to deliver an Electromagnetic Battle Management – Joint Decision Support prototype.

The Third Time May Be a Charm With the S&P 500 

In June, Palantir was rebuffed for inclusion in the S&P 500. However, the index will rebalance again in September. Palantir reports earnings in August. If the company delivers a strong report, as many expect, it will make it more difficult for the S&P 500 to keep it out of the index. And once that happens, the stock will almost certainly receive more institutional interest. For all the headlines the stock generates, only about 45% of the stock’s float is owned by institutions. 

Palantir's Institutional Confidence: A Signal for Investors

A final thought to consider about the future of Palantir stock: the stock has surged over 18% in the last month, and there have been five different insider sales of PLTR stock by three different insiders.  

However, each of these sales was pursuant to a Rule 10b5-1 trading plan. That means the individual was going to sell no matter the price. That's always important to watch, and that's why insider buying is more telling than insider selling.  

That said, it’s fair to note that there have been no insider buys of PLTR stock in the last 12 months. However, institutions have bought $7.5 billion of Palantir while selling approximately $688 million. That should remind investors to follow what the institutions do more than what they say.