When a growth trend is underway, nearly every company that plays to that trend will rally. At least, at first. However, weaker companies will get squeezed out by competition, leading to only a few big players.
Of those players, a few will win based on quality. Others will cater to a lower-end market. When a sector is still new, chances are the higher-end product will perform better than the lower-end one until a few iterations of the technology are worked out.
Right now, the market’s current interest in artificial intelligence (AI) is leading to a number of companies moving higher. But those that already work in the space, and related areas such as deep learning, can be the winners here, especially if they grab big corporate or government contracts.
Palantir Technologies (PLTR)’s announcement that it’s adding AI to its data analytics software is a sign that the company is moving to grab market share in this space.
The company is nearing profitability, and an AI rollout could lead to a big jump higher in revenues in the years ahead.
Action to take: Shares have gone from 72 times forward earnings last year to 38 times this year. Shares have been knocked down by over one-third, but rising revenues and a cash-rich balance sheet will likely allow Palantir to make deep inroads into the AI space. That makes shares a worthwhile long-term buy here.
For traders, shares have been somewhat rangebound for nearly a year. The July $10 calls, last going for about $0.52, can likely deliver mid-to-high double-digit gains on a move to the higher end of that range.
Disclosure: The author of this article has a position in the company mentioned here, but does not intend to trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.
