There’s plenty for bulls and bears to hash out over Palantir Technologies (PLTR). Profitability has improved for PLTR stock, but revenue growth has decelerated.
Bulls point to artificial intelligence software as a possible boost for shares. Palantir has already mined that opportunity with government customers for intelligence gathering, counterterrorism and military purposes.
In addition, Palantir’s Skykit battlefield tactical C2 system — C2 for command and control — enables operators to source and aggregate data, allowing for “timely and actionable analysis.”
Will generative AI spur growth in the commercial market for PLTR stock? The software maker has expanded into health care, energy and manufacturing.
Generative AI could roil a host of industries by creating text, images, video and computer programming code. Also, generative AI technology already is finding applications in marketing, advertising, drug development, legal contracts, video gaming, customer support and digital art.
In health care, Palantir customers possibly could use generative AI in applications such as drug discovery.
When releasing its first-quarter earnings, Palantir announced its newest offering it calls the “Artificial Intelligence Platform.” It will begin rolling out to select customers in May 2023.
“The depth of engagement with and demand for our new Artificial Intelligence Platform (AIP) is without precedent,” Chief Executive Alex Karp said in a recent letter to shareholders. “We are currently mobilizing our company and sales teams in order to convert this organic and inbound interest into an expansion of our reach within the market.”
In a recent note to clients, Bank of America said: “The goal of AIP is to blend the machine learning technologies of existing PLTR technologies with large language models, coexisting in current PLTR platforms, helping businesses and governments make more data-driven decisions and further optimize processes.”
PLTR Stock: Governance Structure
Palantir shares have gained 48% in 2023. But shares trade well below the software maker’s all-time intraday high of 45 set in late January 2021.
Any investors who bought PLTR stock at 7.25 during its direct listing on Sept. 30, 2020, can point to a small gain. In a traditional initial public offering, companies create new shares, underwrite them and sell them to the public. A direct listing creates no new shares and sells only existing, outstanding shares with no underwriters involved.
Palantir’s governance structure gives Karp and co-founder Peter Thiel long-term control of the company through super-voting rights.
The company name is derived from the palantiri, which are crystal ball-like “seeing stones” from the “Lord of the Rings” book and film series. Palantir means “one that sees from afar.”
Palantir engineers often customize software for the needs of customers. That extends the time needed to ramp up “digital transformation” projects. So after Palantir wins a contract it may take awhile to generate revenue.
Palantir Stock Fundamental Analysis
The Denver-based company offers three platforms. One is Palantir Gotham, used primarily by government agencies. There’s Palantir Metropolis for banks, financial services firms and hedge funds. And Palantir Foundry is used by corporate clients.
Palantir gets nearly 60% of its revenue from government agencies. Decelerating revenue growth is an issue. In 2022, revenue growth slowed to 24% from 40% in 2021 and 47% in 2020.
In the first quarter of 2023, revenue rose 18% to $525 million. For the period ended March 31, government revenue rose 20% to $289 million, in line with estimates. Meanwhile, commercial revenue climbed 15% to $236 million, topping views for $217 million.
Profitability has improved for PLTR stock. In the fourth quarter of 2022, Palantir posted net income of $31 million using generally accepted accounting principles, or GAAP. It marked Palantir’s first quarter of positive GAAP net income. In the March quarter, it registered net income of $17 million.
SPAC Investments Draw Criticism
Some analysts have been critical of PLTR’s strategic investments in special purpose acquisition companies, or SPACs, as a way to boost revenue. SPACs raise money in an initial public offering with the purpose of making acquisitions.
Further, Palantir invested in 14 SPACs and early-stage companies since 2021, committing at least $310 million. The SPACs sign multiyear contracts to use Palantir software in their core operations.
In the first quarter, revenue from SPAC agreements boosted Palantir results by $17 million.
“Management expects revenue from SPAC investment agreements to be $17 million to $19 million in Q2, before dropping off significantly in the second half of 2023,” RBC Capital analyst Rishi Jaluria said in his note to clients.
He added: “At least four customers with investment agreements have filed for Chapter 11 bankruptcy, with several others appearing to be headed in that direction.”
In November 2022 Palantir acquired full ownership of a joint venture in Japan that sells the company’s software. Japanese insurance firm Sompo Holdings is the biggest customer.
Then in 2023, Palantir began consolidating revenue from the joint venture in its earnings reports. A Morgan Stanley report estimates the venture had an annual revenue run-rate of $50 million heading into 2023.
Palantir Forges Partnerships
To speed up corporate adoption of artificial intelligence software, Palantir and IBM formed a global partnership. Under the deal, Palantir made its Foundry software available to IBM’s cloud computing customers. The Foundry platform is a centralized data operating system that lets users manage, filter and visualize large data sets.
One issue for PLTR stock is that large U.S. government contracts are coming up for renewal, William Blair analyst Louie DiPalma said in a recent note.
Also, one wild card is whether Palantir will win more contracts in the United Kingdom from its National Health System. The NHS used Palantir during the coronavirus emergency. But a bigger contract worth 400 million euros, or roughly $426.6 million, is now up for grabs.
Palantir has gained traction in the health care market.
For example, Palantir now works with “four large organizations that represent nearly 10% of the entire U.S. hospital system, including Cleveland Clinic and Tampa General,” Goldman Sachs analyst Gabriela Borges noted in a recent report.
Meanwhile, Palantir has received considerable flak involving privacy issues amid its platforms’ use of facial recognition technology. The use of Palantir data analytics software is under scrutiny in Germany because of privacy concerns.
Palantir Stock Technical Analysis
Palantir stock’s Relative Strength Rating stands at 90 out of a best-possible 99. Further, PLTR stock holds an IBD Composite Rating of 98 out of a best possible 99, according to IBD Stock Checkup.
IBD’s Composite Rating combines five separate proprietary ratings into one easy-to-use rating. Also, the best growth stocks have a Composite Rating of 90 or better.
Further, PLTR stock has an Accumulation/Distribution Rating of B+. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. A+ signifies heavy institutional buying; E means heavy selling. Think of a C grade as neutral.
Is PLTR Stock A Buy?
As it stands, PLTR stock is not in a buy zone.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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