Think Palantir Stock Is Too Expensive? Here Are 1.16 Million Reasons to Reconsider.

The dawn of artificial intelligence (AI) began just over two years ago, and the paradigm shift in technology has been stark. These next-generation AI systems have vast potential to rewrite the rules of productivity and streamline everyday tasks in the process. The adoption of the technology is still in the early innings but is already having a pronounced impact on the companies at the forefront of the AI revolution.

Arguably, no company exemplifies the vast potential of these advanced systems more than Palantir Technologies (NASDAQ: PLTR). The company has been at the forefront of AI and data analytics for more than 20 years and was quick to recognize the game-changing potential of generative AI, developing advanced AI tools that have taken enterprise companies by storm.

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The one hurdle that continues to keep some investors on the sidelines is Palantir's valuation. While the stock certainly sells for a premium, some believe the opportunity far outweighs the risk.

Image source: Getty Images.

Decades in the making

Before we focus on its valuation, it's worth reviewing how Palantir became a poster child of the AI revolution and a battleground stock in the process.

Palantir has been one of the early beneficiaries of the accelerating adoption of AI and with good reason. The company leveraged its decades of experience in the field to develop its Artificial Intelligence Platform, or AIP, which integrates deeply into existing company systems to enable businesses and governments to make data-driven decisions.

Palantir has long believed that its software is so good it sells itself. Unfortunately, many business leaders lack the necessary experience and expertise to effectively implement AI systems.

To counter this reality, Palantir began hosting "boot camps." During these intensive sessions, which last from one to five days, executives are paired with Palantir engineers who educate them on the inner workings of AIP and help them address real-world problems. Put another way, instead of giving them a fish, Palantir teaches them to fish. Not only do these leaders develop the tools necessary to deploy AI in their respective businesses, but they also get to see firsthand how the technology pays for itself in short order.

The elephant in the room

There's no denying that Palantir's strategy has been wildly successful. In the first quarter, revenue of $884 million jumped 39% year over year. This resulted in adjusted earnings per share (EPS) of $0.13, which surged 63%. As impressive as that is, it only tells part of the story.

Palantir's U.S. commercial segment, which includes AIP, grew 71% year over year and 19% quarter over quarter, now accounting for nearly one-third of all sales. At the same time, the segment's customer count grew 65%, while its remaining deal value -- or contractually obligated sales not yet included in revenue -- soared 127%.

This tremendous business success has been reflected in Palantir's stock price, which is up 522% over the past year as of this writing, and up more than 1,250% since its IPO in late 2020. With the soaring stock price has come a commensurate increase in its valuation, and there's no denying it trades for a premium. Palantir is currently selling for 563 times earnings 104 times sales, so the stock isn't for the faint of heart.

Yet despite that lofty price tag, one Palantir insider is loading up on shares.

You get what you pay for

In a regulatory filing, Palantir revealed that its former chief accounting officer (CAO), Heather Planishek, bought 10,000 shares of Palantir stock for $1.16 million -- even though the stock was trading near an all-time high. This brought the former executive's total holdings (including as the custodian of a minor's account) to more than 66,000 shares worth more than $8.4 million. A stake of that size suggests a fair degree of confidence in Palantir's future prospects.

Planishek spent more than eight years at the company and roughly two years as its CAO before tenure ended in February. One could argue that her work with Palantir would provide her with keen insight into the inner workings of the company and a real understanding of the magnitude of the opportunity. That makes it all the more notable that Planishek made such a sizable investment with the stock near an all-time.

She's not the only Palantir bull. Wedbush analyst Dan Ives has long been one of the company's staunchest supporters. He believes that Palantir's market cap, which clocked in at $302 billion as of market close on Tuesday, will climb more than 231% to $1 trillion within the next two to three years -- despite the stock's current lofty valuation.

Palantir shareholders with a long-term mindset have already been richly rewarded. For those able to step back and see the big picture, the future remains bright.

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Danny Vena has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.