Palantir Stock Is Down 19% From Its Highs. Time to Buy the Dip?

Palantir Technologies (NASDAQ: PLTR) has been one of the biggest winners amid the artificial intelligence (AI) boom. The top AI stock set a new high early last month, rising to almost $213 per share.

But since then, the stock has cooled amid the broader AI sell-off gripping the markets. Palantir is currently down about 19% from its high (as of Nov. 4), a notable slide that invites a discussion about whether buying the dip is wise following yet another blowout earnings report.

Palantir is infamous for trading at a controversial valuation for most of the past several years. Yet there's an argument for buying Palantir stock. Here's why the stock looks like a long-term winner worth buying on its recent dip.

Palantir puts on another show with Q3 earnings

The company's Q3 earnings were yet another example of just how strong Palantir's business is. Total revenue skyrocketed 96% year over year to $2.31 billion. Palantir primarily serves U.S. customers; domestic business totaled $1.94 billion.

Image source: The Motley Fool.

American enterprises were the star of the quarter. U.S. commercial revenue grew by a staggering 148% year over year to $984 million. This was also the first time that revenue from U.S. enterprises outweighed revenue from government contracts.

One of the most impressive aspects of Palantir's success is the breadth of demand for Palantir's technology. Despite ending the quarter with just 1,090 total customers, the company closed 212 deals worth $1 million or more, including 64 worth at least $10 million.

The stock continues to fall despite the strong quarter

It's fair to wonder why Palantir is down so much after its best quarterly earnings report. There are legitimate concerns throughout the market that the AI infrastructure boom, which has carried markets for several years, could be nearing its end. It seems that capital for many AI companies is drying up.

Many AI stocks have fallen, so one could argue that a receding tide is lowering Palantir and all the other AI ships. Then you factor in Palantir's rich valuation. Despite the recent dip, the stock still trades at more than 75 times trailing-12-month revenue and more than 150 times earnings.

That's an expensive price tag, even with analysts estimating that Palantir's earnings will increase by an average of 43% during the next three to five years. When expectations (valuations) get so high, it's simply difficult to sustain that in the face of industry-wide selling pressure.

Why the stock could be a buy for long-term investors

Palantir serves as a sort of middle layer between AI companies, their models, and enterprises and government customers aiming to wield them. Chief Executive Officer Alex Karp has spoken extensively about how Palantir enables its customers to use AI without exposing their proprietary data and trade secrets to frontier AI labs.

The Q3 earnings call highlighted a couple of examples of this. L3Harris Technologies achieved better results at a much lower cost using an open-source model it had fine-tuned with its own data than with a frontier AI model. Another customer, Tampa General Hospital, is using a similar approach to maintain controls and protections appropriate for a business that handles sensitive patient information.

If customized open-source AI models for enterprises become a trend, Palantir could continue to grow, even if the infrastructure boom cools, thanks to the leap in efficiency.

There's no telling where stock prices go tomorrow, next month, or even next year. However, Q3 earnings highlighted why Palantir's business could withstand, and even thrive amid, a broader unwinding of the AI infrastructure boom. That could make it a buy for patient investors who believe AI is here to stay, even as the industry itself changes.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends L3Harris Technologies and Palantir Technologies. The Motley Fool has a disclosure policy.