The Palantir Applied sciences (NYSE: PLTR) share price has been on hearth recently. From a low of $6 in early 2023, the expansion inventory has surged 440% to achieve $34. It’s up 102% this yr alone and is close to a file excessive!

Palantir shareholders acquired another excuse to cheer lately when it was introduced that the unreal intelligence (AI) and knowledge analytics firm could be becoming a member of the celebrated S&P 500.

Clearly issues are going very properly. So, ought to I add this development inventory to my portfolio? Let’s have a look.

An unconventional enterprise

Co-founder and CEO Alex Karp celebrated the agency’s S&P 500 inclusion in a YouTube video. Wearing working gear and holding pink trekking poles in a forest, he mentioned some on Wall Avenue had seen Palantir as “a Frankenstein monster powered by a freak present chief“. However now, he added, “The rebels [had] gained“.

Named after the ‘seeing-stones’ in J.R.R. Tolkien’s fantasy collection, Palantir employs an unorthodox administration fashion (Karp sometimes leads meditation periods on the agency).

Clearly, this isn’t your common firm, and I like that.

However how does it earn money? Nicely, Palantir is a software program enterprise that helps organisations make knowledgeable selections by figuring out patterns in enormous quantities of knowledge.

It operates two principal platforms: Foundry is for industrial enterprises, whereas Gotham is utilized by authorities and defence. Each analyse massive datasets to drive insights.

To provide two examples, its software program was used to assist find Osama bin Laden and to trace US Covid circumstances.

Blue-chip prospects

The corporate works with the FBI, CIA, and the UK’s Ministry of Defence. Final yr, it gained a five-year contract to create a large knowledge platform for the NHS.

It additionally has contracts with a number of blue-chip corporations. On 9 September, for example, it signed a five-year take care of BP to assist the vitality large use AI to hurry up engineering selections.

Income development has been sturdy for years, rising from $742m in 2019 to $2.2bn in 2023. Within the first six months of 2024, income elevated 24% yr on yr. Robust stuff.

However to affix the S&P 500, an organization should meet a number of standards, together with having constructive earnings in its most up-to-date quarter and over the previous 4 quarters mixed.

On this entrance, the corporate has made nice strides, turning worthwhile for the primary time final yr. And Wall Avenue now expects earnings to develop by a mean of 30% yearly over the following three to 5 years.

Ought to I purchase Palantir inventory?

Quite a lot of current investor pleasure has centred across the agency’s AI platform. This supplies predictive fashions and automates complicated processes. It helped drive Palantir’s US industrial income 55% increased within the second quarter.

My fear right here is valuation. The inventory is buying and selling on a ahead price-to-sales (P/S) a number of of 27. That’s increased than Nvidia, which is at the moment rising sooner. The ahead price-to-earnings (P/E) ratio is 82!

Clearly then, Palantir is priced for sky-high future development. However quite a bit might go unsuitable, from knowledge privateness points to a slowdown in authorities contract wins (the US authorities accounts for over half the agency’s income).

That is undoubtedly a top-notch AI firm rising very healthily. However because it’s frothily valued, I’d relatively purchase different development shares for my portfolio.