Palantir’s AI Evolution: Strategic Shift or Marketing Ploy?
Outside of bounds of a regular commercial company, Peter Thiel’s Palantir (NYSE: PLTR) is often associated with inner workings of state power. Co-founder and current Palantir CEO, Alex Karp, made this clear in no uncertain terms when he stated that the company was critical in shaping the political landscape in Europe alongside preventing terror attacks.
Drawing from Lord of the Rings lore, “Palantir” is all about gathering actionable big data. Then, companies like Airbus, Merck (NYSE: MRK), PricewaterhouseCoopers, AT&T (NYSE: T) or the Department of Defense make informed real-time decisions.
To further that end, Palantir launched the Artificial Intelligence Platform (AIP) in Q1 2023. It facilitated both enterprise and military purposes and greatly boosted existing Foundry, Gotham, and Apollo platforms for Palantir’s data integration and analysis.
On Monday, Palantir Technologies released its Q2 2024 earnings ending June 30th. Does the AI amplification shift Palantir’s bottom line into new valuation territory?
Palantir’s Q2 Earnings Examined
It is no secret that Palantir is considered one of the most overvalued companies on the market. With a market cap of $60.62 billion, Palantir has a trailing price-to-earnings (P/E) ratio of 200.75, while its forward P/E ratio is 76.34 as of August 5th. That means investors are willing to pay $76.34 for every $1 of expected future earnings.
In Q2 earnings, Palantir reported 27% year-over-year revenue growth to $678 million. With a net income of $134 million, representing a 20% margin, the company generated $149 million free cash flow as 22% of total revenue.
Interestingly, Palantir appears to be shifting to commercial contracts as commercial revenue grew by 33% YoY compared to the growth of government revenue by 23%. Even more tellingly, US-based commercial revenue grew by 55% to $159 million.
Although government revenue is dominant at $371 million vs $307 million respectively, Palantir has gone from 14 commercial customers four years ago to nearly 300.
Overall, Palantir grew its client base by 41% YoY, or 7% on a quarterly basis. For the full-year 2024, the company raised revenue outlook to $2.742 – $2.750 billion, with commercial revenue forecasted to exceed $672 million, which would be a 47% growth rate.
Against Visible Alpha forecasting data, this means Palantir’s record-breaking earnings per share of $0.06 beat the estimate of $0.04 EPS.
What Is Palantir’s Trump Card?
Alex Karp has a similar take to Michael Saylor when it comes to enterprise-grade software solutions. MicroStrategy became a proxy for Bitcoin exposure once Saylor came to the following realization:
“What we did in August of 2020 was recognize that there’s no way we’re going to outgrow Google and Microsoft and Apple computers as a mid-sized software company… So we started looking to do an acquisition of a high growth, digital monopoly of our own.”
Michael Saylor, Microstrategy co-founder and executive chairman, in Fox Business interview, November 2023
Likewise, Alex Karp in his August shareholder letter pointed out that “The enterprise software business had for years been crowded with companies whose principal innovation was selling a product that was capable of little more than reincorporating and shuffling data around in what amounted to yet another storage system.”
Centered around Palantir’s philosophy of “Acquire, Expand, Scale”, the company first detects market need, acquires low-cost implementations, showcases its tackling of specific challenges and then scales the platform as clients set Palantir as the umbrella platform.
In the real world, this translates to Goethe library’s countless parameters harnessed by LLM. In turn, the probabilistic engine of LLM is bound by Palantir’s predefined rules. Specifically, to make better decisions faster, AIP offers AI-powered process mining.
As every step of the workflow is clarified by the AI, Palantir’s clients receive greater understanding of how their own organizations work, instead of just relying on vague notions of how they work.
At the end of the AI pipeline, this creates a framework that elevates Palantir above its competitors as clients receive better value for the buck. So far, the financial statements show the strategy to be working.
Palantir’s Chief Revenue Officer Ryan Taylor described this process as solving “the huge bottleneck” between AI app prototypes and useful products, per Reuters.
What Is the PLTR Price Forecast?
Currently at $26.95, PLTR stock is up 63% year-to-date. Palantir’s all-time high was $39 per share in January 2021 during the great meme stock trading, having been boosted by Cathie Wood’s Ark Invest.
Presently, Nasdaq’s forecasting data, based on 15 analysts, still positions PLTR stock as a “hold.” The average PLTR price target is $24.08, with a ceiling of $35 and a bottom outlook of $9 per share. This suggests that PLTR stock still has some overvaluation shedding to do despite positive Q2 results.
Do you think it is a matter of time before other AI companies copy Palantir’s model? Let us know in the comments below.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
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