Why Does Cathie Wood Like Palantir?

Cathie Wood is a prolific investor whose Ark Invest firm was among the most successful through the pandemic. Wood makes her investment choices in actively managed exchange-traded funds (ETFs). Her philosophy is to invest in disruptive companies that have long-term potential in the future of society.

With that in mind, some investors wonder, why does Cathie Wood like Palantir?

Palantir Technologies Inc (NYSE:PLTR) is a Denver, Colorado-based big data analytics company founded in 2003. Peter Thiel and other cofounders built two major projects – called Gotham and Foundry – that are utilized by government and corporate entities for advanced data analysis.

However, PLTR share price has been fairly uneventful since its late November 2020 direct listing on the New York Stock Exchange. It’s holding steady with a ballpark $45 billion valuation, leaving investors wondering if it can one day break above the $100 billion mark.

Still, Wood doubled down and bought 2.6 million more PLTR shares six months after the offering. What’s not so clear on the surface is why.

What Does Cathie Wood Invest In?

Ark believes in the future, and its investment portfolio represents that. Instead of investing in businesses doing well today, Wood looks for the companies that will become household names in the future. This often includes tech-focused companies, especially more advanced technologies focused on digital finance like Square (SQ), biotechnology, space, sustainable energy, and internet communications.

She’s widely been tapped as a next-generation Warren Buffett, although she doesn’t seek dividends. Instead, she’s happy to invest in companies that reinvest in their businesses. These stocks often grow to major gains, like Tesla (TSLA), which Wood championed for years before it finally skyrocketed and entered the S&P 500 above the price point she predicted.

Both institutional and retail investors rushed to follow her lead, and the “Wood Effect” could be as strong of a market force as the “Buffett Effect” or WallStreetBets. Why did she choose to invest in Palantir though?

Why Did Cathie Wood Buy Palantir?

Wood spoke many times on her love for Palantir. She sees that big innovations typically originate in the government sector, and a lot of Palantir’s revenue comes from government contracts. These long-term contracts are lucrative and helped to grow the company to its current size.

But it’s the corporate side that will inevitably grow the company’s market. It’s learning to leverage its market analytics and intelligence to track consumers just like private citizens. With the plethora of big data available, this market will certainly grow over time.

She sees the long-term potential of the company’s services and believes its grossly undervalued. 

Cathie Wood PLTR Price Target

According to Wood, the intrinsic value of PLTR stock corresponds to a price per share of $34.00, which is 50-percent higher than it traded for in the first half of 2021.

This is a healthy profit opportunity for investors who jump in early enough. That would value the company at around $65 billion, and many analysts anticipate that it could easily surpass $100 billion in the next five years.

The size of the Big Data market is estimated at a $64 billion in 2021, and it’s expected to grow to $103 billion by 2027. Palantir has an early-lead advantage that gives it a technological barrier to entry for competitors jumping in.

But what could Cathie be missing in her Palantir investment thesis?

Is Cathie Wood Wrong About Palantir?

Palantir so far isn’t fully impressing investors. While the company is profitable, it’s a long way from growing to full market penetration showcasing the use cases of its offerings. And it’s not alone in the big data race – plenty of companies are on the rise in machine learning, artificial intelligence, and other related markets.

Not only that, but major companies like Intel (INTC), Microsoft (MSFT), Amazon (AMZN), Google (GOOG), and more are eyeing the data market. This is creating serious competition that could be hard to overcome as these companies have an in-built advantage of installed customer base to target. 

Thiel and company moved from Silicon Valley to Colorado to avoid criticism from liberal VCs not keen on working directly with the government on surveillance. Now it needs those connections to spread into the real world. Otherwise, it’s blazing a trail for someone else to follow and succeed.

How High Could Palantir Go?

Despite these obstacles, optimists are touting the merits of Palantir becoming a trillion-dollar company. It’s at least well on its way to becoming a $100 billion company.

PLTR grew substantially over the past two decades without public investment, and this extra liquidity should help it become a more welcome name outside of government surveillance circles.

If the company can successfully leverage this data in the retail and other sectors, the sky is the limit.

Big data is a major component of the digitization of business. Artificial intelligence and machine learning require large scathes of data. Running the right analytics on the right data points can predict human behavior and much more.

This is one of the most powerful uses of technology in the modern world and could be fundamental in all business moving forward. That’s why Wood invested in Palantir and so many are considering following.

Why Does Cathie Wood Like Palantir: Conclusion

Cathie Wood is the head of ARK Invest, an investment firm that focuses on disruptive innovation. She already believed in Palantir and championed the stock since its public listing. Because of her track record with companies like Tesla (TSLA) and other emerging technologies, the market scrutinizes Wood and often follows her lead.

She doubled down on Palantir in late March 2021, showing her continued interest in the big data company. This could be a great opportunity for investors to produce a significant upside on their investment within the next few years if she’s right.

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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.