Palantir's Stock Valuation Still Looks Absurd. Here's Why Investors Keep Buying It Anyway.

When OpenAI publically released ChatGPT connected Nov. 30, 2022, shares of Palantir Technologies (NASDAQ: PLTR) were trading for $6. Today, the banal hovers astir $150 -- a astir 2,000% summation successful conscionable 3 years.

With a marketplace headdress of $368 billion, Palantir is astir worthy the combined worth of bequest endeavor bundle stocks Salesforce and SAP. It's evident by present that request for artificial quality (AI) is the halfway tailwind fueling Palantir's parabolic rise.

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The question immoderate are asking is whether Palantir's soaring valuation is sustainable. Below, I'll interruption down wherefore astute investors proceed to bargain the banal manus implicit fist -- contempt the quality of an overvalued sanction benefiting from AI-driven tailwinds.

When I was an concern banking analyst, I spent countless hours putting unneurotic comparable institution analyses. In layman's terms, this means that I benchmarked our lawsuit against a adjacent acceptable of comparable businesses successful the aforesaid manufacture to deduce a valuation range.

Broadly speaking, analysts volition look astatine price-to-sales (P/S), price-to-earnings (P/E), oregon endeavor value-to-EBITDA multiples depending connected the institution and manufacture successful question. As acold arsenic bundle stocks are concerned, the P/S ratio is simply a bully metric to commencement with. Many SaaS businesses are not consistently profitable, and truthful measuring a cohort connected a gross ground levels the playing field.

If you were to basal an concern successful Palantir purely disconnected of the figures above, you'd travel to the speedy decision that Palantir banal is absurdly overvalued comparative to different starring SaaS enterprises. While I recognize that logic, it's flawed.

Smart investors recognize that adjacent investigation has its shortcomings. While companies similar Snowflake, ServiceNow, Databricks, and MongoDB each correspond high-growth players successful their respective bundle verticals, nary are true, nonstop competitors to Palantir.

This raises the question: Why did I see these companies successful my investigation astatine all? Well, I much oregon little had to. You see, information analytics, database management, and cybersecurity are comparatively commoditized businesses.

While Palantir is often touted for its data-driven actionable insights, the company's Artificial Intelligence Platform (AIP) is acold much complex. With its Foundry and Gotham suites, Palantir not lone aggregates and synthesizes data, but allows decision-makers to simulate captious workflows successful existent time.