The AI theme continues to drive the markets. Yesterday, another AI-related stock, Palantir, saw its share price surge by 31% in a single day.
Palantir’s year-over-year revenue growth of 20% in 4Q23 is commendable, but not particularly impressive. In fact, the guidance for 1Q24 revenue fell below analysts’ expectations.
Typically, this weaker guidance would have pressured the stock, but investors found solace in the AI narrative.
In a letter to shareholders, CEO Alex Karp stated, “The demand for large language models from commercial institutions in the United States continues to be unrelenting.”
This statement was music to investors’ ears, especially since it was supported by tangible gains – its US commercial revenue increased by 70% year-over-year! For the longest time, Palantir has been more successful with its government contracts, but this dynamic has shifted, with growth now stemming from its commercial entities that are capitalizing on the AI gold rush and driving demand for its AI Platform (AIP).
Another cause for celebration is that Palantir has achieved its fifth consecutive quarterly profit, and rumors have already started circulating that it might be added to the prestigious S&P 500 index by the end of last year (as a stock must post profits in the most recent quarter and be profitable over the trailing twelve months).
Palantir has met these qualifications, and it appears to be only a matter of time before it is added to the index. Should this occur, more institutional funds would be obligated to purchase Palantir shares. This suggests that the substantial jump in the stock price yesterday could be attributed to some investors front-running, in anticipation that these funds will further drive up the share prices.
Shareholders of Snap, on the other hand, did not have a good day. Its share price plunged 32% during after-hours trading.
The social media company’s results were disappointing, especially when high expectations were set following Meta Platforms’ blowout quarterly results. However, the outcomes only emphasized that the gap between Meta Platforms and Snap has widened further.
Meta generated $40.1 billion in revenue in the last quarter and grew by 25%, whereas Snap, despite being significantly smaller with $1.36 billion in revenue, only managed a 5% growth. Typically, smaller companies are expected to grow faster in percentage terms due to their smaller bases, as well as to catch up to market leaders. Unfortunately, this was not the case for Snap.
Adding insult to injury, Meta achieved a record $14 billion net profit, which is more than ten times Snap’s revenue, and declared its first-ever dividend. Meanwhile, Snap remains focused on narrowing its losses.
It is clear that the social media and advertising industry as a whole has rebounded, but somehow Snap failed to capitalize on this resurgence.
Pinterest is set to report its results on Thursday, and Reddit is seeking an IPO in March. With Meta setting a high benchmark, these social media companies may face investor backlash if their performances fall short of expectations.
