Several important players in the technology industry – including Peter Thiel, co-founder of PayPal (PYPL) – started Palantir stock in 2003 to focus on big data analytics.
The company struggled to secure funding at first, even though Thiel claimed that they could apply some of PayPal’s fraud recognition systems to spot terrorism threats without invading the privacy of individuals. This was a critical topic in 2003, just two years after the 9/11 terrorist attacks.
Eventually, the CIA invested $2 million in Palantir. Thiel and his venture capital firm, Founders Fund, contributed $30 million to keep the business afloat while it expanded its technology and searched for clients.
Not surprisingly, governments became Palantir’s key clientele, including several agencies within the US government, such as the National Institutes of Health, the Centers for Disease Control and Prevention, and the Recovery Operations Center, which used Palantir software to track stimulus funds and identify fraud after the Great Recession.
The company also works with the British National Health Services, International Atomic Energy Agency, and several corporations, including Amazon AWS, Babylon Health, and International Business Machines (IBM).
Not surprisingly, the company has been forced to handle several controversies, especially from groups alleging that their data systems violate civil liberties, or at least have the potential to abuse civil liberties.
Still, it remains a significant source of insight for the US government and several corporations. Has it taken the right steps to make it a buy that you should add to your investment portfolio?
Palantir Continues to Innovate New Products
Palantir (PLTR) has repeatedly shown interest in innovating new products. It does not want to rest on its laurels. It has its sights set on the future of data, data collection, and analytics.
One of Palantir’s most exciting projects has focused on coordinating more than 200 hundred satellites to create what it calls a “meta-constellation.” Working in conjunction with several companies, Palantir has access to abundant information gathered by satellite sensors. The result is perhaps the largest collaboration of orbiting sensors.
The data-collecting constellation has numerous military applications for the US and its allies. It also has the potential to spot natural disasters, such as wildfires, quickly so authorities can respond to threats and lessen the damage they cause.
Palantir Added Several New Clients in Q2 2021
Palantir has closed dozens of critical, high-value contracts in 2021. So far, it has announced 62 deals worth $1 million or more. Twenty-one of the deals will generate $10 million or more. Thirty will generate between $5 million to $10 million. The remaining deals will bring in between $1 million and $5 million.
This shows that Palantir has tremendous skill at attracting new contracts. Assuming that it can keep converting high-value leads into clients, investors can expect the company’s size and influence to keep growing.
Palantir Shows Ability to Grow Its Revenues and Profits
Let’s take a look at some concrete numbers to determine Palantir’s current level of financial success.
During Q2, Palantir’s revenues increased by 49%. When you focus on commercial clients in the US, its revenue increase reaches 90%. Within one quarter, it nearly managed to double the number of commercial clients it has in the US. That’s quite an accomplishment.
Critically, the average revenue that Palantir earns from its top clients has grown quickly from quarter to quarter. In Q1, the average revenue from its top 20 customers was $36 million. In Q2, that amount increased by $3 million to $39 million.
Considering that this is an average, it’s easy to see that Palantir’s top 20 clients cumulatively spent $60 million more. It’s impossible to ignore such rapid growth.
Looking a little into the future, Palantir estimates that total deal value will increase by about 63%, which would come to $3.4 billion.
This estimate shows that Palantir has faith in its ability to innovate even more products and services for government agencies and large corporations. It’s important to consider that these are extremely high-value clients. Large corporations will happily spend millions of dollars when they know the expense will help them save money in the long run or become more competitive in their industries.
While government agencies must work with the budgets they have, most governments are willing to write blank checks when an opportunity shows potential to improve military operations. They don’t need to get their money back. They just need to prove that they used the technology to prevent or predict attacks.
Palantir is playing it smart by courting these clients. $1 million contracts are terrific. $10 million contracts, however, are what it will take for the company to become the industry leader.
Palantir Stock Prices Haven’t Changed Considerably in 2021
The interesting thing about Palantir is that its share price hasn’t changed significantly in months. It had an uptick in February 2021 and went slightly over $35. Since then, it has hovered between $20 and $25.
This could represent a remarkable opportunity for anyone who wants to add long-term growth to their portfolio. Palantir Technology is doing all of the right things in an industry with growing importance.
Government agencies will not stop surveillance. Even when organizations claim that governments overstep their bounds and trample civil liberties, the agencies will always push back because they know that a single terrorist attack would undermine any remaining confidence in their abilities to protect residents.
Similarly, corporations will always want to use big data analytics to uncover fraud and streamline processes. There’s too much at risk for them to ignore the importance of products offered by Palantir.
Why hasn’t the stock’s price gone up? Perhaps concerns over a slow sales cycle and high customer concentration. The company has only been public since 2020, so investors may want to see more reports from Palantir before buying shares. Potential investors might also believe that other companies have competitive products that prevent Palantir from dominating the industry.
Is Palantir Stock a Buy? Conclusion
It’s impossible to know how Palantir’s stock price will move in the future. At the moment, though, it seems undervalued.
Financials from Q1 and Q2 make it look even more likely that the company has plenty of opportunities to grow, earn more money, and increase profits.
Few tech and data companies have committed to pushing the boundaries like Palantir. Adding it to your portfolio seems like a smart move. Whether you will truly benefit depends largely on whether Palantir is pushing the right boundaries to expand its reach and attract more clients.
Keep a close eye on Palantir over the next few quarters. There’s a decent chance that its value will increase significantly. Once everyone starts buying shares, you will need to spend more money buying shares.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.