The Rise of Palantir Technologies

Palantir Technologies Inc. (NYSE:PLTR) is undoubtedly one of the biggest success stories coming of the past few years. The company’s software infrastructure is a hit among government organizations and its commercial push forward is equally laudable.

The AI hype has also created a conducive environment around the stock’s data analytics infrastructure. Since the stock’s debut in September 2020, investors have seen the stock rise more than 162%, positioning it as a juggernaut in its market space.

How Far Has Palantir Come?

Since the company’s foundation, Palantir has been a pioneer in providing security operations to government agencies. Its platforms are used to analyze large volumes of data and for counterterrorism operations.

As the company has grown, so too have its operations become increasingly diversified. These days, Palantir’s software platforms are in use far and wide in numerous industries. And the number has been growing steadily.

In 2021, Palantir’s software was being applied to more than 50 industries, but it grew to above 60 in 2022, and as of year-end 2023, its platform was reported to be used in about 80 industries worldwide.

Last year, the company achieved GAAP-based profitability, posting a $96 million profit in the fourth quarter of fiscal 2023, a considerable increase of about 190% from the previous year’s figure.

In the first quarter of fiscal 2024, Palantir reported its sixth consecutive quarter of GAAP profitability. Quarterly net income grew more than five-fold to reach $106.07 million.

Q1 was especially bountiful for the company, as it closed 87 million-dollar-deals, about 27 of which were worth at least $5 million and 15 worth at least $10 million. Customer count also inflated 42% from the prior year’s period and 11% sequentially in tandem to reach 554. As a result, the company’s quarterly top line also grew 21% to reach $634.34 million.

In this regard, Palantir also highlighted a positive aspect, i.e., the rule of 40. The popular rule states that Software-as-a-Service (SaaS) companies should have a combined revenue growth rate and profit margin equal to or above 40%.

Over the past three quarters, combining Palantir’s revenue growth with its adjusted operating margin, the rule of 40 has been easily exceeded. In fact, over the past eight quarters, there have been only two instances where this figure has fallen short of 40%.

How Is Palantir’s Commercial Push Working?

The company’s commercial operations are receiving a lot of attention because top line growth was buoyed by the move away from government contracts to the private sector.

Palantir’s commercial revenue grew by 27% year-over-year to $299 million in the last quarter. By comparison, government revenue grew by just 16%. Commercial revenue in the U.S. had an even better performance, growing by 40% to $150 million.

Palantir’s commercial customer count went from 280 as of the trailing-12-month (TTM) period ended March 2023 to 427 as of the TTM ended March 2024, which is a 53% increase.

For the U.S., customer count stands at 262 and the growth rate here is 69%. In fact, over the past three years, the U.S. customer count has grown 12 times.

So, who are Palantir’s biggest customers? The US Department of Defense was historically Palantir’s biggest customer but the Army awarded a $480m contract in May. So too have enterprise customers in the private sector grown to become large customers, including Hertz Global, JP Morgan Chase and Thomson Reuters. 

The growing engagement in the private sector is largely attributable to Palantir’s stellar AI push. The company facilitates AI and ML usage on top of solid software and large data.

Last year, Palantir launched its Artificial Intelligence Platform (AIP), which is seeing a lot of engagement in the form of boot camps. And there remains a lot of untapped potential in this area, like growing AIP’s availability to a broader range of institutions.

Is It Time to Buy Palantir?

Even after posting an exceptional financial growth for the first quarter of this year, the company’s shares dropped in after-market trading. Financial performance also managed to exceed expectations both of Wall Street and the company’s own projections.

A raised outlook was a cherry on top. FY2024 revenue expectations were raised from a range of $2.652-$2.668 billion to $2.677-$2.689 billion. U.S. commercial revenue was expected to clock in at 40% growth, but has been raised to 45% or more.

On the balance sheet, a notable positive is the lack of debt and growing cash pile approaching $3.8 billion in cash and equivalents.

Gross margins also remain high at 81.7% last quarter, a real boon for the bottom line which is set to grow again this year. Indeed, net income is forecast to rise at an astonishing 50.9% over the next 5 years while the top line is expected to keep rising at 21.4% annually over the same time period.

Sentiment appears to have shifted positively also with 6 analysts upgrading their forecasts for earnings for the next reporting period.

With a $53 billion market cap at this time, a cash-rich balance sheet, and EPS set to grow at a very rapid pace over the next half decade, it’s no wonder Stan Druckenmiller has added to his position once again after jumping ship to ride the Nvidia train during its skyrocketing period.

And having turned the corner to profitability and maintaining high gross margins, it throws down the gauntlet to other investors to perhaps follow suit.

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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.