As the Palantir share price falls, is this the time to buy an AI stock on the cheap?

Jon Smith notes the fall in the Palantir share price after the release of the latest results, but flags up why he thinks the stock is a good buy.

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It might have been a bank holiday here in the UK yesterday (6 May) but the stock market on the other side of the pond was open. More than that, the last few US companies reported results as the earnings season draws to a close. One that caught my eye was Palantir Technologies (NYSE:PLTR). The Palantir share price is down almost 10% in after-hours trading. Is this a dip I should look to buy?

Details of the results

On the face of it, the results for Q1 were very good. Revenue for the period came in at $634m, which was growth of 4% versus last quarter and up 21% year-on-year. It recorded another profitable quarter, the sixth on the bounce.

Digging a little deeper, it was good to see that demand from both the public and private sector is strong. Government revenue grew 16% versus the same time last year, with commercial revenue also up 27%. This is good because it means Palantir isn’t overly reliant on just one customer segment for its software sales.

Unfortunately, investors looked past the good news and focused on the outlook for the rest of the year. The business is guiding for full year revenue of $2.68bn-$2.69bn, which is lower than the market was expecting.

CEO Alex Karp hinted that the business needs to convert more prospects into clients. He referred to the 660 boot camps held in the quarter, where firms can come and test the products and solutions that Palantir offers. He said that “they need results now. And we believe that we have the only platform that works.”

A lofty benchmark

Some investors might be puzzled why an exciting artificial intelligence (AI) stock that is growing in both revenue and profits should fall so much after the earnings. Yet in reality, I’ve seen this happen before.

What has happened here is that investors have set the bar incredibly high for their expectations of how fast the business should be growing. Then even if the expected guidance is good, if it doesn’t meet the high bar set, people are disappointed.

You could argue that this is fickle thinking, but it’s not uncommon to see. The share price is not just based on the value of the firm now, but rather what could happen in the future. So investors who thought growth would be greater are now having to readjust their expectations, making the stock worth less in the short term.

The long-term view

If we take a step back, I think Palantir is in great shape. The big data analytics that it provides is becoming more and more important for companies around the world. Further, the CEO mentioned that “warfare in this century will continue to be transformed by software.” This is true, and another reason why I expect government spending with Palantir to increase going forward.

With all of that in mind, I’m seriously thinking about buying some of the stock shortly, as I expect it to move back higher in the long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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