Excitement around artificial intelligence (AI) stocks may be about to pick up with Anthropic’s IPO on deck. Its valuation may top $2 trillion, which would be more than what Space Exploration Technologies Corp, better known as SpaceX, fetched earlier this year when it went public.
That could be great news for Palantir Technologies (NASDAQ:PLTR) stock, which has been rallying of late, and is now trading at around $200, not far from its 52-week high. Could the euphoria around AI send the stock to $300 before the end of the year?
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Why Palantir’s stock could rally
Palantir CEO Alex Karp has been critical of frontier AI labs such as Anthropic in the past as being too risky. He advocates for companies to have more control over their data, which is the case with Palantir’s Ontology, which acts as a digital twin, sitting on top of an organization’s data.
Anthropic’s IPO could put these issues at the forefront, and with Anthropic potentially going public at a $2 trillion valuation while remaining unprofitable, investors may view Palantir as a more favorable AI stock to own, as its valuation is less than $500 billion.
Next week, Palantir is also expected to post its latest quarterly earnings numbers for the third quarter, which are sure to be impressive, once again. The last time the tech company reported earnings, its growth rate was an impressive 93%, coming in at $1.9 billion. Its operating income was also impressive, totaling 47% of the top line. Another strong performance could send the stock rallying to new heights.
Is the stock headed for $300?
For Palantir’s stock to reach $300, its market cap would need to be above $700 billion, for an increase of about 50%. While the business is growing incredibly fast, a rally that large is unlikely, especially in a short amount of time.
For most of the year, the stock has been struggling as the stock’s hefty valuation has weighed on investors’ minds. I wouldn’t be surprised if it hits a new all-time high if it has another strong quarter in Q3, but I wouldn’t expect it to climb as far as $300 before the end of the year.
Investors should be careful with Palantir’s stock as its valuation is incredibly high given its size. At more than 170 times earnings, a lot of future growth is already priced into its valuation, and even if its Q3 numbers look great, that may not be enough to trigger a huge rally. At its current valuation, the stock looks to have more downside risk than potential upside, which is why I wouldn’t rush to buy it.
