Down 11%, Is Palantir a Buy on the Dip?

Palantir Technologies (NASDAQ: PLTR) is one of the biggest success stories of the artificial intelligence (AI) boom so far. The software company, by helping customers analyze and use their data, allows them to immediately apply AI to their needs -- and this has powered Palantir's revenue and profit higher. The stock price has followed, climbing 2,400% over the past three years.

But, in recent weeks, the shares lost some momentum -- and they actually fell after Palantir reported yet another stellar quarter of earnings. The stock slipped 11% in the four days following the Nov. 3 after-market report. Is Palantir now a buy on the dip? Let's find out.

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Why investors love Palantir

First a quick bit about why investors have flocked to Palantir stock in recent years. The company has long relied on government contracts for growth, but after launching its Artificial Intelligence Platform (AIP) two years ago, Palantir's commercial business took off. Quarter after quarter, the government and commercial businesses have seen double-digit revenue growth as customers, through Palantir, have found a way to harness the power of AI.

Palantir also is lifting profit, and trends such as increasing commercial customers from 14 five years ago into the hundreds today and reaching record levels of contract value also add to the positive picture. Palantir's U.S. commercial business has more than doubled revenue over the past 12 months -- and Palantir chief Alex Karp predicts that we're still in the early days of the growth story for this business and the company as a whole.

What's weighed on Palantir recently

All of this is positive, yet there is one element that has been weighing on Palantir's performance in recent days, and this has to do with the price you'll pay to get in on the stock. Palantir, trading for more than 240x forward earnings estimates, has entered nose-bleed territory when it comes to valuation.

The stock, at these levels, is expensive -- though it's important to note that this measure includes earnings expectations for the year ahead but doesn't account for longer-term growth.

Considering all of this, should you buy Palantir on the dip? It's important to think about your investment strategy before answering. If you're a value investor or a cautious investor, Palantir isn't the right stock for you -- at least at today's valuation. Even if Palantir has a great growth story ahead -- and I believe it does -- the current valuation could weigh on appetite for the stock in the near term.

But, if you're an aggressive investor with a well-diversified portfolio, now, on the dip, is a great time to add shares of Palantir to your portfolio -- and hold on for the long term as the AI boom continues to drive revenue growth and potentially more performance from this top stock.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.