Probably the most polarizing and maybe misunderstood, companies on Wall Road is Palantir Applied sciences (NYSE: PLTR). For years, the corporate was privately held and bankrolled by distinguished Silicon Valley enterprise capitalists — most notably, Peter Thiel.
Not like different start-ups, Palantir remained considerably elusive throughout its time as a personal firm. Little or no was identified about its operation past its ties to the U.S. authorities.
When Palantir hit the general public exchanges in late 2020, a dichotomy was shaped virtually instantly between retail buyers and institutional funds. The retail neighborhood took a liking to it, thanks largely to its CEO, Alex Karp.
However Wall Road had a distinct opinion. Many analysis analysts noticed the corporate as not more than a authorities contractor or a glorified consulting enterprise, masquerading as an enterprise software program developer.
After a brutal sell-off in 2022, the inventory rebounded sharply final yr, surging by 167%. Since reporting earnings for the fourth quarter and full yr 2023 earlier this week, Palantir has been on one other tear.
Let’s dig into the earnings report and assess how the corporate is debunking Wall Road’s bear argument.
Is not Palantir only a authorities contractor?
Palantir works intently with the U.S. authorities and its Western allies. Given the corporate’s reliance on giant public-sector offers, many on Wall Road dubbed the enterprise a contractor much like RTX Company or Lockheed Martin.
There may be some huge cash to be made in authorities contracting, however these offers are usually lumpy and are far much less predictable than different conventional know-how companies. Administration spoke at size concerning the firm’s refined information analytics capabilities rooted in synthetic intelligence (AI); Wall Road simply did not appear to purchase it.
Actually, Edwin Dorsey of The Bear Cave went so far as to declare Palantir an “AI imposter.”
The battle is actual, or is it?
Given the sentiment above, it is clear that Wall Road had its doubts over Palantir’s means to penetrate the non-public sector. The desk beneath illustrates its income tendencies between its authorities and business segments during the last a number of years.
Authorities income annual development
Industrial income annual development
Knowledge supply: Palantir investor relations
The desk is a little bit robust to interpret. On the floor, it’d seem that Palantir is shifting within the fallacious path, given its slowing development. Understand that the final couple of years have been particularly robust for software program companies as corporations of all sizes have reined in spending on account of macroeconomic challenges.
The extra essential theme is that Palantir’s business sector enterprise is usually accelerating and is not taking part in second fiddle to the legacy authorities phase. For the trailing-12-month interval ended Dec. 31, the full buyer rely elevated 35% yr over yr — however the commercial-sector buyer rely rose 44%. That is essential to know.
Basically, Palantir has achieved an exceptional job buying new prospects, notably past authorities companies. Nevertheless, the expansion charges depicted above underline that it has but to completely monetize this new enterprise. For that reason, buyers ought to be inspired concerning the firm’s future and the potential for exponential development.
The bears ought to return into their caves
Palantir was capable of swiftly make inroads within the non-public sector because of a artistic lead-generation technique. Final yr, the corporate launched its fourth main product, the Synthetic Intelligence Platform (AIP). In an effort to market the product amid intense competitors, it began internet hosting immersive seminars referred to as boot camps, throughout which potential prospects may check the corporate’s merchandise and establish a use for AI.
Administration says it hosted over 500 boot camps in 2023, in comparison with 92 demo pilots in 2022. This enhance underscores how a lot consideration AI-powered merchandise are garnering, and the corporate’s buyer development outlined above validates administration’s declare that “momentum in AIP is driving each new buyer conversions and current buyer expansions.”
Palantir’s unrelenting development within the business sector is weakening the bear argument that it’s only a glorified authorities contractor. Furthermore, the smashing success of AIP and the demand it is producing proves that the corporate has developed spectacular analytics software program merchandise.
Whereas I believe bears akin to analyst Louie DiPalma at William Blair will not change his tune anytime quickly, the latest value motion within the inventory may counsel that the corporate is turning into extra broadly accepted as an rising AI chief amongst its massive tech counterparts.
Some may counter that the corporate’s authorities enterprise is decelerating, however a pattern like this ought to be anticipated given the lumpy nature of public sector offers. Moreover, this argument would not maintain quite a lot of advantage provided that some on Wall Road initially soured on Palantir for being too reliant on authorities contracts.
The corporate is constructing a powerful enterprise exterior of its legacy authorities apply, and it is utilizing revolutionary options pushed by AI to realize this new part of development. Merely put, Wall Road cannot have it each methods.
Regardless of the run-up within the inventory, it nonetheless trades about 40% off its all-time highs. For buyers trying to achieve publicity to high-growth AI companies, Palantir represents a singular alternative past megacap tech. Now may very well be an fascinating time to start out constructing a long-term place.
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Adam Spatacco has positions in Palantir Applied sciences. The Motley Idiot has positions in and recommends Palantir Applied sciences. The Motley Idiot recommends Lockheed Martin and RTX. The Motley Idiot has a disclosure coverage.
The Bear Argument In opposition to Palantir Is Collapsing. Here is Why. was initially revealed by The Motley Idiot