Finance

Bear’s argument against Palantir is falling apart. Here’s why.


One of the most polarizing and perhaps most misunderstood businesses on Wall Street is Palantir Technology (NYSE:PLTR)For years, the company was privately held and funded by prominent Silicon Valley venture capitalists, most notably Peter Thiel.

Unlike other startups, Palantir has remained somewhat elusive during its time as a private company, with little known about its operations beyond its ties to the U.S. government.

When Palantir hit public exchanges in late 2020, a dichotomy emerged almost immediately: retail investors The retail industry loves it, thanks in large part to its chief executive, Alex Karp.

But Wall Street sees it differently, with many research analysts believing the company is nothing more than a government contractor or a glorified consulting firm masquerading as an enterprise software developer.

After a brutal sell-off in 2022, the stock rebounded sharply last year, surging 167%. Palantir has once again been on a tear since announcing its fourth-quarter and full-year 2023 earnings earlier this week.

Let’s dive into the earnings report to assess how the company debunked Wall Street’s bearish thesis.

Isn’t Palantir just a government contractor?

Palantir works closely with the U.S. government and its Western allies.Given the company’s reliance on large public sector deals, many on Wall Street refer to the company as a contractor, something like RTX Corporation or Lockheed Martin.

There’s a lot of money to be made in government contracting, but these deals tend to be unstable and far less predictable than other traditional tech businesses.Management spoke at length about the company’s sophisticated data analytics capabilities, which are rooted in AI (AI); Wall Street doesn’t seem to be buying it.

In fact, The Bear Cave’s Edwin Dorsey even declared Palantir an “AI imposter.”

A person sits in front of a computer and writes software code.

Image source: Getty Images

The struggle is real, or is it?

Given the sentiment above, it’s clear Wall Street is skeptical of Palantir’s ability to penetrate the private sector. The table below shows revenue trends between its government and commercial segments over the past few years.

category

2020

2021

2022

2023

annual growth rate of government revenue

77%

47%

19%

14%

Business revenue annual growth rate

twenty two%

34%

29%

20%

Source: Palantir Investor Relations

The form is a bit difficult to interpret. On the surface, Palantir appears to be heading in the wrong direction, given its slowing growth. Keep in mind that the past few years have been particularly tough for the software business, as all companies have scaled back spending due to macroeconomic challenges.

The bigger theme is that Palantir’s commercial arm is generally accelerating and is no longer playing second fiddle to the traditional government sector. Total customers grew 35% year-on-year in the 12-month period ended December 31 – but the number of customers in the commercial segment increased 44%. It’s important to understand this.

Essentially, Palantir does a great job of acquiring new customers, especially those outside of government agencies. However, the above growth rate highlights that it has yet to fully monetize this new business. Therefore, investors should feel encouraged about the company’s future and prospects. Potential for exponential growth.

Bears should go back to their dens

Palantir was able to quickly enter the private sector thanks to its creative leading strategy. Last year, the company released its fourth main product, the Artificial Intelligence Platform (AIP). In order to market the product amid fierce competition, the company began Hosts immersive workshops called “boot camps,” during which potential customers can test the company’s products and identify uses for artificial intelligence.

Management said the company held more than 500 training camps in 2023 and 92 demo pilots in 2022. The growth highlights how much attention AI-driven products are gaining, and the customer growth at the aforementioned companies corroborates management’s statement that “momentum in AIP is driving growth in both areas.” New customer conversion and existing customer expansion. “

Palantir’s continued growth in the commercial sector undermines the argument that it is just a glorified government contractor. Furthermore, the huge success of AIP and the demand it generated proves that the company has developed an impressive analytics software product.

While I doubt bears like William Blair analyst Louie DiPalma will change their stance anytime soon, the stock’s recent price action could be a sign that the company is being taken over by its Big Tech allies Wider acceptance as an emerging AI leader.

Some might counter that the company’s government business is decelerating, but that trend should be expected given the volatile nature of public sector deals. Furthermore, this argument doesn’t have much merit, considering some on Wall Street were initially unhappy with Palantir. Overreliance on government contracts.

The company is building a strong business outside of traditional government practices and using innovative solutions powered by artificial intelligence to enable a new phase of growth. Simply put, Wall Street can’t have it both ways.

Despite the stock’s gains, it’s still trading about 40% off its all-time high. For investors looking to invest in high-growth artificial intelligence businesses, Palantir represents a unique opportunity to outperform the big tech companies. Now could be an interesting time to start building a long-term position.

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Adam Spatako Worked at Palantir Technologies. The Motley Fool works for and recommends Palantir Technologies. “Motley Fool” recommends Lockheed Martin and RTX. “Motley Fool” has disclosure policy.

Bear’s argument against Palantir is falling apart. Here’s why. Originally published by The Motley Fool



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