Is Palantir a Good Artificial Intelligence (AI) Stock to Buy Now?

After rising by more than 100% in 2024, Palantir Technologies (NYSE: PLTR) is finally getting Wall Street's attention. The data analytics company has benefited from a surge in excitement around its new generative artificial intelligence (AI) tools. And it will join the benchmark S&P 500 index this month, demonstrating its growing relevance in the market.

Let's dig deeper to see if it's a good idea for new investors to bet on this booming stock right now.

Is AI software ready for prime time?

Since the launch of OpenAI's ChatGPT in late 2022, generative AI-related stocks have generated billions, if not trillions, in shareholder value. However, so far, most of the operational momentum has been limited to hardware giants like Nvidia, which saw its second-quarter revenue more than double by selling the graphics processing units (GPUs) needed to run and train these advanced algorithms.

While the software side of the AI industry has enjoyed relatively less success, Palantir could help change this dynamic by introducing the technology to discerning military clients and intelligence agencies that need to stay one step ahead of their adversaries.

The company has created its Artificial Intelligence Platform (AIP) designed to synergize its legacy data mining tools with AI large language models (LLMs) to provide real-time insights in high-stakes combat scenarios for the U.S. and its allies. Palantir also courts private sector businesses through its data analytics platform Foundry (its government-focused platform is called Gotham).

Business momentum looks good

Palantir's soaring stock price corresponds with healthy business momentum. In the second quarter, total revenue grew 27% year over year to $678 million. However, while the company is best known for its high-profile government contracts, private sector work is becoming an increasingly core part of its business model.

Palantir's second-quarter private sector customer count soared 83% to $295 million, and segment revenue increased by 55% to $159 million (around 23% of total sales). While this remains a relatively small part of Palantir's business, its growth will be welcome news for investors.

Unlike government contracts, which can be blocky and inconsistent, commercial software-as-a-service (SaaS) revenue is designed to be stable and reccurring. This characteristic will make Palantir easier to predict and value. It also provides welcome diversification and suggests the company is good enough to compete in a very crowded field.

Palantir's bottom line also remains buoyant, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rising 39% to $261.6 million. However, this metric adds back a whopping $141.8 million in stock-based compensation.