Palantir: A Bullish Outlook Amidst Skepticism

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PALANTIR TECHNOLOGIES: A STEADY GROWTH

Palantir Technologies, known for its cutting-edge artificial intelligence software, empowers businesses with advanced data analysis.

Its platforms, like the Palantir Artificial Intelligence Platform and Palantir Foundry, are revolutionizing big data analytics.

As of July 1, Palantir's stock has surged by over 52% this year and jumped another 8.06% in the past week, trading at $25.49 in pre-market hours.

This boost follows a key update: Palantir is expanding its partnership with Voyager Space.

This builds on a June 20 agreement where Palantir will provide exclusive software for the Starlab commercial space station, a venture by Voyager Space and Airbus.

In February, Palantir and Voyager Space agreed to a Memorandum of Understanding to boost national security within the commercial space sector.

Voyager Space brings a wealth of experience, with a track record of over 2,000 spaceflight missions.

With Palantir and Voyager Space's bold new steps, how high will Palantir's rally climb next?

PALANTIR'S STOCK PRICE AND STEADY GROWTH UPDATE

Brokerage firm Monnes, Crespi, and Hardt recently downgraded Palantir to a "Sell" rating and set a target price of $20 per share.

Analyst Brian White thinks investors might steer clear of software stocks that are seen as too expensive, believing Palantir's current valuation has become excessive.

As of June 28, Palantir's price-to-earnings ratio had climbed to 211.08, which has risen since April.

This high price-to-earnings ratio suggests the stock is overvalued, meaning investors pay a premium for each dollar of Palantir's earnings.

"Palantir's stock soared 167% in 2023, which was already expensive as we entered 2024. With another 49% rally this year, we think the valuation has now reached a dangerously high level," White stated.

While the brokerage acknowledges that Palantir could benefit long-term from the rising artificial intelligence trend and global political instability, White issued a warning.

He believes that Palantir's high valuation, the current pressure on software firms, and inconsistent revenue from government contracts could lead to future problems.

Yet, despite the downgrade, Palantir's stock has been climbing. The company secured and extended several defense contracts in the first half of 2024.

The US Army extended its Maven Smart System contract with Palantir for another five years, worth almost $90 million annually. Maven Smart System is an artificial intelligence (AI)-enabled tool for battlefield analysis. Conceptualized in 2017, the project aims to use AI and machine learning to make systems more efficient across military operations.

Palantir also landed a significant deal with the DoD's Chief Digital and artificial intelligence office for AI-powered operating system licenses, which could be worth $480 million over five years.

On the other hand, in the first quarter, Palantir's revenue jumped 21% year-over-year to $634 million, with $257 million coming from US government contracts, marking a 12% YoY increase.

The company reported its sixth consecutive quarter of GAAP profitability with $106 million.

Palantir has been actively promoting its artificial intelligence platform interface to corporate clients.

In May, it inked a $19 million deal with the Advanced Research Projects Agency for Health to enhance healthcare services using machine learning.

US commercial revenue surged by 40% year over year to $150 million, and the number of customers increased by 69% yearly to 262 clients.

For the second quarter, Palantir projects revenues between $649 million and $653 million and has raised its full-year 2024 revenue forecast to slightly above $2 billion.

Dan Ives, an analyst at Wedbush Securities, recently told BNN Bloomberg that Palantir stands out as the leading artificial intelligence company with real-world applications.

He believes the company's monetization efforts begin as the artificial intelligence industry evolves.

CLIENTS FLOCKING TO PALANTIR AIP

Imagine a wholesale supplier hit by a severe storm disrupting one of its distribution centers.

Management needs a quick way to find alternative supply routes and assess their impact on profit margins.

Or picture managing a company's inventory and needing to understand how changing prices will affect demand.

Maybe you want to streamline payment processing by integrating purchase orders, invoices, and warehouse receipts.

These scenarios all showcase the power of Palantir's artificial intelligence platform.

Palantir’s artificial intelligence platform uses large language models to let clients ask complex questions in plain English and get actionable answers.

Selling such a sophisticated platform isn't easy, and potential clients often struggle to see how it fits their specific needs.

To tackle this, Palantir runs “boot camps,” where potential customers create tailored use cases for their businesses in just a few days.

These boot camps have proven highly effective, leading to a surge in Palantir’s US commercial customers.

This strategy led to a 40% increase in US Commercial sales to $150 million and a 27% rise in global commercial sales to $299 million in the first quarter.

Government revenue grew more slowly, up 16% to $335 million.

Cracking the commercial market is crucial for Palantir's long-term growth.

Overall, the first quarter sales jumped 21% year-over-year to $634 million, and Palantir saw a boost in profitability.

But not everyone is convinced.

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PALANTIR BEAR CASE

Moreover, Palantir has a big fan base among retail investors and has sparked heated debates between its supporters and critics for years.

But the company is steadily addressing the critics' concerns.

Let's look at two major ones.

First, Palantir's ongoing losses were a major issue.

This was a valid concern as the company struggled with annual losses until 2023 when it finally became profitable.

Palantir has now reported net profits for the last six quarters and significantly boosted its operating profits.

Second, critics targeted Palantir's heavy reliance on stock-based compensation to reward employees, especially top executives.

Issuing many new shares to pay employees dilutes existing shareholders' stakes.

However, as Palantir's revenue has grown, it has been cutting back on stock-based compensation.

Stock-based compensation also helps companies conserve cash.

Palantir ended the first quarter with $4 billion in cash and investments and no long-term debt.

Some investors are still wary of Palantir because of its steep valuation.

The stock trades at nearly 25 times its current sales.

This is less expensive than CrowdStrike but more costly than Snowflake, both of which are high-growth software companies with market caps under $100 billion.

Palantir’s valuation is higher than its historical average, but it's also the most profitable among these peers.

Over the past four quarters, Palantir has earned nearly $200 million in operating profits.

In contrast, CrowdStrike made just $24 million, and Snowflake suffered a staggering loss of just over $1 billion.

For those considering Palantir stock, patience might be key.

The best approach could be to buy in gradually and regularly to benefit from any price drops.

This dollar-cost averaging strategy can help mitigate short-term risks when dealing with high-priced stocks.

Palantir has established itself as a leader in data and artificial intelligence management.

Despite its high valuation, its growing profits and solid financial footing position it for long-term success.

WHERE WILL PALANTIR STOCK BE IN FIVE YEARS?

The release of OpenAI's ChatGPT in 2022 kicked off a boom in generative artificial intelligence, revitalizing companies like Palantir.

But with Palantir's shares climbing 73% in the past year, is all the growth already factored in? 

Let’s see what the next five years might hold for this software giant.

Palantir's future will hinge on integrating large language models and generative artificial intelligence into its data analytics tools.

Yet, the commercial landscape is fiercely competitive. Competitors like Snowflake and Microsoft Fabric offer similar data analytics without Palantir's controversial reputation.

They also have their own cloud services, while Palantir's Foundry depends on third-party providers like AWS, Google Cloud, and Microsoft Azure.

Conversely, Palantir's government sector seems poised for a significant upswing.

With global tensions escalating in regions like Europe, Africa, the Middle East, and Asia, the demand for Palantir’s software is rising.

There's also a growing need for automation, driven by personnel shortages and technological advancements like drones.

Palantir’s strong ties with the US government are paying off, too.

Palantir recently secured a $480 million contract with the US Army for the Maven Smart System.

This system leverages artificial intelligence and computer

Disclaimer: This newsletter is for informational purposes only and should not be considered financial advice. Always consult with a qualified financial professional before making any investment decisions.

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