No technology company of our time inspires as much hope and fear as Palantir (NASDAQ:PLTR). This is true for its technology, a deep learning database used primarily by the military. It’s also true for PLTR stock and its prospects.
Bulls see Palantir worth $50 per share, bears barely $10. (It was selling at $26 on July 24.)
When it comes to technology, optimists see Palantir as a revolutionary defender of freedom and a magic bullet for productivity. Pessimists see Palantir as an overhyped, dangerous, authoritarian scam.
I believe it’s none of those things. I also believe it’s a speculative buy for a young investor.
Let’s take a closer look.
The Optimistic View
Source: shutterstock.com/Tex vector
Palantir happily took the label of “Artificial Intelligence” after ChatGPT arrived. At the time the stock was selling for under $8 and the company was struggling to define itself as a data analysis company.
It’s more of a Machine Internet company. It combines what’s known about all your assets and offers strategic insights into deploying them, in real time.
The Pentagon loves it. Every month, it seems, Palantir is bagging another major contract, with more secret information being made available to more people. The latest is a $480 million, five-year deal for Maven, “fusing data from intelligence, surveillance and reconnaissance systems.”
Palantir’s software can identify and optimize what our side has while identifying and strategizing against what the other side has. Dan Ives of Wedbush sees it worth $50 per share.
There are also civilian applications, for both government and commercial accounts. The company has strong relationships with both Oracle (NASDAQ:ORCL) and Microsoft (NASDAQ:MSFT). Its ability to coordinate hospital work won it a deal with England’s National Health Service last year.
The Pessimistic View
Source: Dejan Lazarevic / Shutterstock.com
The pessimistic view starts with Palantir being primarily a military contractor.
Most military contractors have limited growth but are highly profitable because it’s difficult to get out of the military box. Palantir grew just 17% last year and has only been marginally profitable for about a year. While it was earning profits last year, it also had very negative cash flow, $1.78 billion worth.
Palantir’s selling point with the military is that it is highly-proprietary system. That’s great if you’re in the secrets business. It’s not so great if you’re a hospital or if something is broken and you need to fix it.
While other defense software contractors sell for 13-15 times sales, Palantir sells for closer to 26 times sales, even amid the latest sell-off. It’s also vulnerable to what Gartner (NYSE:IT) calls the “trough of disillusionment,” the realization that AI may not fully justify the current hype.
CEO Alex Karp, who despite doing a good job seems overpaid at $1.1 billion, brags about Palantir’s commercial revenue growth in his most recent stockholder letter, but it’s still just 24% of the business. Palantir remains and likely will always remain a military-first company. That’s why analysts have been saying it is “priced to perfection.” That’s analyst-speak for limited upside.
The Bottom Line
Source: Poetra.RH / Shutterstock.com
Most AI companies remain focused on the interface between people and data. I like the fact that Palantir is focused on the interface between machines and data.
It’s this interface that gives Palantir value and should give speculators at sites like Stocktwits hope. The best AI systems today aren’t focused on replacing people so much as doing what people can’t. People can’t yet penetrate the fog of war.
It’s by sticking to a clear, coherent strategy that the best companies, and generals, win. Palantir has that. The question is whether it has enough runway, earned serving the war machine, to justify its valuation.
This depends on its ability to grow the commercial side of the business. Look closely at those numbers when it next reports Aug. 5. If they’re good, go long.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
As of this writing, Dana Blankenhorn had a LONG position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at [email protected], tweet him at @danablankenhorn, or subscribe to his free Substack newsletter.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.
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No technology company of our time inspires as much hope and fear as Palantir (NASDAQ:PLTR). This is true for its technology, a deep learning database used primarily by the military. It’s also true for PLTR stock and its prospects.
Bulls see Palantir worth $50 per share, bears barely $10. (It was selling at $26 on July 24.)
When it comes to technology, optimists see Palantir as a revolutionary defender of freedom and a magic bullet for productivity. Pessimists see Palantir as an overhyped, dangerous, authoritarian scam.
I believe it’s none of those things. I also believe it’s a speculative buy for a young investor.
Let’s take a closer look.
The Optimistic View
Source: shutterstock.com/Tex vectorPalantir happily took the label of “Artificial Intelligence” after ChatGPT arrived. At the time the stock was selling for under $8 and the company was struggling to define itself as a data analysis company.
It’s more of a Machine Internet company. It combines what’s known about all your assets and offers strategic insights into deploying them, in real time.
The Pentagon loves it. Every month, it seems, Palantir is bagging another major contract, with more secret information being made available to more people. The latest is a $480 million, five-year deal for Maven, “fusing data from intelligence, surveillance and reconnaissance systems.”
Palantir’s software can identify and optimize what our side has while identifying and strategizing against what the other side has. Dan Ives of Wedbush sees it worth $50 per share.
There are also civilian applications, for both government and commercial accounts. The company has strong relationships with both Oracle (NASDAQ:ORCL) and Microsoft (NASDAQ:MSFT). Its ability to coordinate hospital work won it a deal with England’s National Health Service last year.
The Pessimistic View
Source: Dejan Lazarevic / Shutterstock.comThe pessimistic view starts with Palantir being primarily a military contractor.
Most military contractors have limited growth but are highly profitable because it’s difficult to get out of the military box. Palantir grew just 17% last year and has only been marginally profitable for about a year. While it was earning profits last year, it also had very negative cash flow, $1.78 billion worth.
Palantir’s selling point with the military is that it is highly-proprietary system. That’s great if you’re in the secrets business. It’s not so great if you’re a hospital or if something is broken and you need to fix it.
While other defense software contractors sell for 13-15 times sales, Palantir sells for closer to 26 times sales, even amid the latest sell-off. It’s also vulnerable to what Gartner (NYSE:IT) calls the “trough of disillusionment,” the realization that AI may not fully justify the current hype.
CEO Alex Karp, who despite doing a good job seems overpaid at $1.1 billion, brags about Palantir’s commercial revenue growth in his most recent stockholder letter, but it’s still just 24% of the business. Palantir remains and likely will always remain a military-first company. That’s why analysts have been saying it is “priced to perfection.” That’s analyst-speak for limited upside.
The Bottom Line
Source: Poetra.RH / Shutterstock.comMost AI companies remain focused on the interface between people and data. I like the fact that Palantir is focused on the interface between machines and data.
It’s this interface that gives Palantir value and should give speculators at sites like Stocktwits hope. The best AI systems today aren’t focused on replacing people so much as doing what people can’t. People can’t yet penetrate the fog of war.
It’s by sticking to a clear, coherent strategy that the best companies, and generals, win. Palantir has that. The question is whether it has enough runway, earned serving the war machine, to justify its valuation.
This depends on its ability to grow the commercial side of the business. Look closely at those numbers when it next reports Aug. 5. If they’re good, go long.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
As of this writing, Dana Blankenhorn had a LONG position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at [email protected], tweet him at @danablankenhorn, or subscribe to his free Substack newsletter.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.More From InvestorPlace
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