What we think about Palantir Technologies (PLTR)
Palantir in Three Words: Embedded, Scalable, Eccentric
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Background
Named for the all-seeing crystal ball of Lord of the Rings, Palantir’s operational intelligence platform is helping complex organizations draw actionable insights from a flood of data. Its massive switching costs are helping it expand within current customers, including lucrative new contracts with several government agencies. It is also unleashing its Foundry platform on commercial enterprises, who can get it up and running in less than a month and immediately use it to start optimizing their business operations.
Palantir’s revenue grew 17% and its customer count increased 34% in its most recent fourth quarter, driven by a 37% increase in its US-based commercial customers. The ramp-up of large commercial enterprises can be extremely profitable. Palantir captured an adjusted free cash flow (excluding stock compensation) of $141 million, which represented a 25% margin.
Government contracts got delayed through much of 2022, but appear to be back on track once again in 2023. Government revenue grew 12%, driven by America’s support for Ukraine and a $90 million new deal from the National Nuclear Security Administration.
Palantir also unveiled its new Artificial Intelligence Platform for commercial enterprises earlier this year. It will allow businesses to deploy large language AI models on their own private networks, providing a “full-fidelity representation of your business that includes all actions, decisions, and processes.” That should be well-received, as enterprises recognize the potential for LLMs like GPT – but still need some help getting them set up and fine-tuned on their own company-specific data.
There’s certainly plenty more business for Palantir on the Middle-earth horizon. The company has $3.7 billion of remaining deal value (remaining value of existing contracts) and $988 million of remaining performance obligations (noncancellable contract revenue).
More recently, Palantir reported impressive 70% year-over-year US commercial revenue growth in its fourth quarter 2023 results, as its Artificial Intelligence Platform is catching on and is scaling quickly at larger enterprises. Wall Street is also applauding the company’s fifth consecutive quarter of positive GAAP earnings per share. The company’s unorthodox variable ownership control structure, generous stock-based compensation, and eccentric CEO are risks that investors should consider. But Palantir’s best-in-class platform and embedded relationships make it one of the market’s most intriguing global growth stories.
Conviction Rating Changes
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On February 10, 2025, Palantir was ...
Thoughts on Current Valuation and Capital Allocation
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Recent Company Updates:
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February 4, 2025: Palantir once again reported impressive results. Fourth quarter 2024 revenue grew 36%, driving by the 64% increase in US commercial sales.
American enterprises are rapidly adopting Palantir's Artificial Intelligence Platform (AIP) and its incredibly-fast deployment time is helping new demand to skyrocket. Palantir booked 58 new deals worth at least $5 million and 32 deals worth at least $10 million, totaling $803 million of U.S. commercial Total Contract Value (+134% year-over-year).
The company is firing on all cylinders and its market enthusiasm has reached the stratosphere. At today's price of $103 per share, Palantir's stock is now priced at an astronomical 94x trailing sales, 516x earnings, and 253x free cash flow.
While investors should applaud its incredible performance, they should also exercise caution before buying into such an extremely frothy valuation.
Previous Updates:
Palantir’s Earnings Surprise Isn’t Worth Celebrating Just Yet
Palantir’s Mixed Bag: Commercial Skyrockets but Government Slips; Shares Still a Buy