This AI Company Is the Best-Performing Stock on the S&P 500 of 2024 (Note: It’s Not Nvidia)

Topline

The best-performing stocks in the S&P 500 this year aren’t Nvidia or Tesla, but another, lesser-known name cashing in on the artificial intelligence gold rush: Palantir Technologies, the data-hungry defense conglomerate led by an eccentric billionaire Alex Karp.

Important facts

tangent

Palantir is the third-best performing stock of all publicly traded companies worth at least $50 billion in 2024, regardless of S&P status, behind marketing software company Applovin (756% gain) and Bitcoin hamster MicroStrategy (477%).

What does Palantir do?

Palantir uses AI-powered analytics to provide solutions for big data. The company is benefiting from rapidly growing demand for artificial intelligence (AI) platforms in both commercial and government end markets,” Bank of America analyst Mariana Perez Mora said in a note to clients earlier this year. Palantir may be best known for its work as a Defense Department contractor, but its customers also include companies like General Mills and United Airlines. Government contracts accounted for $408 million of Palantir’s $726 million in third-quarter revenue.

Surprising fact

Quarterly revenue of under $1 billion may seem strange for a company valued at more than $150 billion, and for good reason. Based on price-to-sales ratio, Palantir is by far the most expensive stock in the S&P. This is a key figure that compares a company’s last 12-month sales with its market value. Palantir’s price-to-sales ratio of 67 is almost double that of the next closest company, Texas real estate giant Texas Pacific Land Corporation at 37, and it is more than 20 times higher than the S&P media price-to-sales ratio of 3. But Palantir’s “dominant position.” in the AI-powered software market…should support revenue growth and profit expansion,” predicts Perez Mora.

Cons

A Wall Street favorite due to its high profit margins and best-in-class technology, Palantir is not without controversy. The company came under fire from human rights groups ahead of its IPO over its involvement with Immigration and Customs Enforcement. Palantir data was linked to raids against people living in the US illegally. Karp said in 2020 that his company’s analyzes had helped ICE “find people in our country who are undocumented,” adding that he sympathized with the “legitimate concerns about what is happening at our border, how it happens and what … enforcement looks like.” .”

Forbes rating

Karp, co-founder and CEO of Palantir, is worth about $7.5 billion, making him one of the 400 richest people in the world. Another co-founder, Peter Thiel, is the 148th richest person with a fortune of $15 billion, while the other two co-founders, Stephen Cohen and Joe Lonsdale, officially joined the ranks of billionaires last month.

tangent

Karp describes himself as an advocate of “populist left-wing politics” and supported Vice President Kamala Harris in the November election, but his co-founders Lonsdale and Thiel are among the most prominent donors to right-wing politics. “Daddy’s home,” Lonsdale celebrated after Donald Trump’s victory in November, while Thiel has donated tens of millions of dollars to Republican causes over the past decade. “Because Peter had supported Mr. Trump, it was actually harder to get things done,” Karp told the New York Times’ Palantir this summer about Thiel’s public support of Trump in 2016 (Thiel did not endorse a candidate that cycle).

Crucial quote

“It’s a rare cult with no sex and very few drugs, and we don’t poison anyone,” Karp quipped to hedge fund billionaire Stanley Druckenmiller during a discussion at a JPMorgan Chase event earlier this month, referring to Palantir’s tight-knit culture.

Further reading

ForbesHow Palantir became the S&P’s most expensive stock — and earned CEO Alex Karp a spot on the Forbes 400From Phoebe LiuForbesHow a “deviant” philosopher built Palantir, a CIA-funded data mining giantFrom Andy Greenberg