The U.S. stock market seems to have heaved a sigh of relief after the Federal Reserve kept the benchmark interest rate unchanged in its latest policy meeting. Further, on the back of a faster-than-anticipated drop in inflation, the central bank seems to be planning for an interest rate cut of 75 basis points in 2024. The U.S. economy also seems to have missed the bullet of a severe recession and is on a moderate growth path in the fourth quarter, driven mainly by a rebound in retail sales and a strong labor market.
All this bodes well for the overall investor sentiment on the stock market. With the high possibility of a continued bull rally in the coming months, here’s why Palantir (PLTR -3.90%) and Meta Platforms (META -0.31%) can prove to be attractive picks for retail investors in 2024.
Shares of data analytics company Palantir soared by almost 176% so far in 2023. These gains are impressive, especially since the stock has seen a significant pullback in recent times, partly driven by a bearish analyst report from William Blair.
In early December 2023, analyst Louie DiPalma raised questions related to Palantir’s $458 million multiyear contract with the Army and cited a high possibility that the renewed contract may be significantly lower in value than the original one. The analyst cites “data ownership” as one of the potential reasons for this move since the company plans to leverage customer data to train its AI models. Palantir’s recent announcement of getting a one-year extension to the contract, valued at $115.04 million, seems to have partly improved investor sentiment.
Despite the negative press, the renowned founder and CEO of Ark Invest, Cathie Wood, continued to accumulate this stock. Wood purchased 1.7 million shares across three exchange-traded funds (ETFs) from Dec. 6 to Dec. 15. The strong confidence in the company’s future growth prospects is not without a reason.
Although the government sector makes up nearly 55% of Palantir’s total revenue, commercial clients are fast becoming a major revenue source. In the third quarter, government revenue grew by 12% year over year to $308 million and commercial revenues were up 23% year over year to $251 million. Furthermore, while there have been concerns with the Army’s data contract, the remaining government business is mostly sticky since these contracts are secured over a long period and involve significant trust between partners. A diversified client base increases the resilience of the company in a tough macroeconomic environment.
In the current tumultuous geopolitical environment, Palantir also stands to benefit from increased demand for intelligence services from military and defense agencies across the world. The company is also rapidly securing business in international markets, as evidenced by a 21% year-over-year jump in international government revenue to $78 million and a 15% year-over-year rise in international commercial revenues to $134 million.
Finally, the recent launch of the Artificial Intelligence Platform (AIP) can also prove to be a major growth catalyst for Palantir. AIP enables Palantir’s clients to leverage the power of large language models (LLMs) in addition to existing machine learning algorithms on its proprietary data, to derive insights and aid informed decision making. With the AI market expected to surge from $207.9 billion in 2023 to $1.85 trillion in 2030, Palantir’s cutting-edge AI software is well positioned to capitalize on this long-term trend.
After multiple painful cost-cutting initiatives, including slashing jobs, canceling low-priority projects, and reducing capital expenditure spending in 2022 and 2023, social media giant Meta Platforms (META -0.31%) seems to be finally recovering. Shares of the company have gained by 190% so far in 2023. Yet, there are many reasons why the company can continue to soar in 2024.
With a user base accounting for nearly 40% of the global population, Meta’s family of apps (which includes Instagram, WhatsApp, Messenger, and Threads) already wields considerable influence in the digital advertising space. In 2023, these platforms together generated $93.9 billion in revenue and an impressive $41.8 billion in operating profit — mostly from digital advertising.
Further, under CEO Mark Zuckerberg’s leadership, Meta is transforming itself into an AI innovation powerhouse by reallocating resources to AI projects, deprioritizing non-AI projects, and investing significantly in generative AI initiatives such as the Llama 2 and Llama 3 large language models. The company is leveraging its superior AI capabilities to increase user engagement by suggesting relevant and curated content and to attract new advertisers by helping them create effective advertisements on its platforms.
Meta is also successful in developing new revenue streams. To that effect, the company converted its short-video content format Reels from a headwind to a modest revenue tailwind for 2024. Meta also focuses on monetizing its 2 billion WhatsApp user base with Click-to-WhatsApp advertising and paid messaging services.
Considering its broad user base, which gives it high bargaining power with advertisers, AI initiatives, and new monetization avenues, Meta seems to be a compelling pick for 2024.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Manali Bhade has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Palantir Technologies. The Motley Fool has a disclosure policy.
