Palantir Remains a Leader in the Artificial Intelligence Platform Space

Equity Analyst

Malik Ahmed Khan

Gross Profit, Operating Income, and Net Income as a percentage of Revenue

Gross Margin

Operating Margin

Profit Margin

Margins

An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX.

Sales and marketing

Research and development

General and administrative

Operating Expenses

Year over year growth in Revenue and Operating Expenses.

Revenue Y/Y

OpEx Y/Y

Growth

Shares outstanding refer to a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Outstanding Shares

Market Cap

Also known as Price/Sales Ratio. Calculated using Average market cap for the quarter / Annualized quarterly revenue.

Revenue Multiple

We believe Palantir is well placed for long-term success as a leader in artificial intelligence/machine learning platforms. Its two main platforms, Gotham and Foundry, are well suited to help governments and commercial clients harness the power of data. Palantir’s platforms stand to materially benefit as organizations seek to expand their use of data to inform business decisions. We expect this secular tailwind to allow the company to land more clients while also expanding revenue from existing ones.

Big Data is ubiquitous and is harvested from almost every touch point across an organization. However, it’s not a guarantee that all AI/ML projects will lead to wonderful business outcomes, as organizations often fail to appreciate the complexities and intricacies within a multilayered data science project. AI/ML platforms like Gotham and Foundry enable organizations to develop solutions that leverage Big Data and result in business and operational efficiencies.

As a key player in this space, Palantir has a strategy of focusing on high-value, large organizations and developing bespoke AI/ML solutions that fit their business needs. While this strategy has led to the company landing large clients (both governments and commercial) that spend millions of dollars on its platforms, it has stunted customer growth as Palantir’s platforms are seen as too expensive for many large organizations. To counteract this, Palantir has shifted to a modular sales strategy with customers now able to purchase specific modules instead of onboarding an expensive platform at the onset. This is coupled with a usage-based pricing model that allows Palantir to land customers with low annual spending and ramp their expenditure on its platform up over time by either increasing usage or selling the customers additional modules.

We have a positive outlook on Palantir’s business and expect the firm to demonstrate financial success in both the governmental and commercial end markets. As the firm expands its top line via upselling and landing new clients, we also expect material margin expansion as the business grows and matures.

Business Strategy & Outlook

We assign Palantir a narrow economic moat rating owing primarily to strong switching costs associated with its platforms and secondarily to intangible assets in the form of strong customer relationships the firm has built up over the years. We think that Palantir’s two main platforms, Gotham and Foundry, both benefit from high customer switching costs as evidenced by the firm’s strong gross and net retention metrics. Palantir has exhibited strong customer growth while diversifying its business away from lumpy governmental contracts toward commercial clients. As a result, although we forecast a couple of more years of hefty operating losses, we expect the firm to generate excess returns over invested capital, on the whole, over the next decade.

The primary use case for Palantir, across its governmental and commercial clients, is the ability to leverage data to develop insights and create efficiencies in an organization’s operations. The Gotham and Foundry platforms serve the governmental and commercial end markets, respectively. More recently, the firm launched a third platform, Apollo, which ensures that Palantir’s clients have continuous delivery of Gotham and Foundry, irrespective of whether they have deployed these platforms on the cloud or on premises. 

Within modern large organizations (both commercial and governmental), Big Data is pervasive. We estimate the amount of total digital data stored worldwide will grow to 620 zettabytes (every zettabyte has a billion terabytes) by the end of the decade, indicating a 10-year compound annual growth rate of 28%. With this backdrop, large organizations are increasingly interested in gleaning insights from the copious amounts of data they’re producing and consuming. While this shift to leverage data to drive efficiencies may seem intuitive, often organizations struggle to turn this data into tangible improvements. Based on various industry reports, we contend that only a minority of artificial intelligence/machine learning-based analytical solutions deliver business outcomes. Palantir’s platforms assist large organizations in making sense of this data while allowing its clients to use any data type (structured and unstructured) from any location (spreadsheets, customer relationship management systems, hyperscalers, on premises, Internet of Things sensors). 

After ingesting the data, Palantir’s platforms allow clients to derive insights while allowing nontechnical users to understand the picture painted by the data via visualizations. By allowing its platforms to be used by nontechnical users, Palantir is able to entrench itself in a customer’s ecosystem as a diverse group of users utilize its platforms. 

When considering the Foundry and Gotham platforms, we think high customer switching costs are likely. Across our coverage, we see that spending by large organizations tends to be sticky. Palantir’s clients, especially governments, are using its products for incredibly important cases where errors can be potentially fatal or catastrophic. As a result, we think that these clients have little reason to switch away from Palantir. Further, we see Palantir moving its clients along the upselling schedule by either analyzing more data or offering them additional capabilities. In either case, we see Palantir expanding its touch points across a client’s organization, thereby making churn less likely over time. Our thesis on the presence of switching costs is backed by the firm’s consistently high retention rates.

Buttressing the firm’s strong switching costs are intangible assets in the form of strong customer relationships that Palantir has built up over the years. These relationships, often with governments and large commercial clients, have enabled Palantir to not only expand sales from existing clients but, over time, also reduce the likelihood of churn. In our opinion, these relationships, particularly with government clients, will continue to benefit Palantir as agencies expand usage on existing projects while also being the vendor of choice for upcoming ones.

We believe another critical aspect of Palantir’s competitive strength is its neutrality. By offering clients AI/ML tools that are agnostic to the type of data and its source, Palantir’s platforms stand to benefit from enterprises and governments increasingly leaning toward a multicloud approach. We believe that in a hybrid multicloud environment, enterprises are increasingly averse to vendor lock-in. Big software companies such as Amazon, Microsoft, and Alphabet have long utilized the strategy of entering tangential verticals as a means of strengthening customer switching costs.

We think Palantir is still in the early stages in terms of customer penetration and platform adoption. As increased digitization of large organizations continues to drive clients toward AI/ML platforms, we believe Palantir has a long runway for growth. We view major opportunities for the firm in both commercial and governmental end markets as organizations shift away from in-house solutions that are expensive and unscalable over the long run.

Narrow

Economic Moat

Palantir Technologies

Palantir Technologies, Inc. is a holding company, which engages in the development of data integration and software solutions. It operates through the Commercial and Government segments. The Commercial segment offers services to clients in the private sector. The Government segment provides solutions to the United States (US) federal government and non-US governments. The firm offers automotive, financial compliance, legal intelligence, mergers and acquisitions solutions. Its products include Palantir Gotham and Palantir Foundry. The company was founded by Stephen Cohen, Nathan Dale Gettings, Joseph Lonsdale, Alexander C. Karp, and Peter Andreas Thiel in 2003 and is headquartered in Denver, CO.

Earnings data Q3 2020

Earnings data Q4 2020

Earnings data Q1 2021

Earnings data Q2 2021

Earnings data Q3 2021

Earnings data Q4 2021

Earnings data Q1 2022

Earnings data Q2 2022

Earnings data Q3 2022

Earnings data Q4 2022

Earnings data Q1 2023

Earnings data Q2 2023

Earnings data Q3 2023

Earnings data Q4 2023

Earnings data Q1 2024

Earnings data Q2 2024

Palantir achieves GAAP profitability, eyes revenue growth in 2023

Palantir's Q4 2022 marked GAAP profitability, strong revenue, and cash generation.
The company's financial position is robust with no debt and $2.6 billion in cash.
Challenges include navigating macroeconomic factors and maintaining profitability.
Opportunities lie in expanding large deals, revenue growth, and operational efficiency.

Palantir Technologies reports record Q1 results, eyes growth opportunities

Palantir Technologies showcased strong financial performance, technological strengths in AI, and a focus on profitability and growth. While facing challenges in achieving profitability and market education, the company is well-positioned to capitalize on opportunities in expanding their customer base and demonstrating the value of their unique products. Overall, Palantir's strategic focus on innovation and client success drives their path towards sustained growth and profitability.

Palantir reports strong profitability, eyes S&P 500 inclusion for growth

Palantir Technologies showcases financial stability and growth with three consecutive quarters of GAAP profitability and strong cash flow.
The company's emphasis on profitability, AI transformation, and customer value propels its positioning as a leading enterprise software company.
Challenges include balancing growth investments with profitability and effectively monetizing AI products for future success.
Opportunities lie in S&P 500 inclusion, market education on AI solutions, and leveraging increased interest in Palantir's products for expansion.

Palantir achieves GAAP profitability, secures key contracts, and drives growth

Palantir's Q3 2023 performance reflects strong growth, profitability, and customer engagement, driven by the success of the Apollo Intelligence Platform and strategic government contracts.
While facing challenges in sustaining growth and managing costs, the company's focus on innovation, AI, and mission-driven culture positions it well for future opportunities.
With a raised revenue guidance, increased R&D investment, and a commitment to excellence, Palantir aims to set industry standards and outperform competitors.

Palantir excels in Q4 2023, poised for revenue growth

Palantir Technologies delivered a robust performance in Q4 2023, showcasing financial strength and market traction through AIP and boot camps.
The company's strengths lie in data integration expertise, organizational alignment, and proven software effectiveness in critical areas.
While challenges in monetization and market competition exist, Palantir has opportunities to drive revenue growth, expand market reach, and strengthen partnerships for sustained success.

Palantir Technologies reports strong Q1 performance amidst internal challenges

Palantir Technologies' Q1 2024 earnings call highlighted robust financial performance, strategic focus on customer alignment, and challenges related to internal disagreements on societal values. The company's commitment to product excellence, growth initiatives, and addressing negative perceptions position it for continued success in the market.

Revenue

Cost of revenue

Gross profit

Operating expenses

SG&A

Other

Operating income

EBITDA

Net income

Earnings per share

Total assets

Current assets

Cash & equivalents

Receivables

Inventory

Non-current assets

Net PPE

Intangibles

Total liabilities

Current liabilities

Short term debt

Income tax payable

Non-current liabilities

Long-term debt

Total equity

Stockholders equity

Minority interest

Total liabilities & equity

Total debt

Net debt

Book value per share

Cash from operations

Funds from operations

Change in working capital

Cash from investing

Capital expenditure

Purchase/sale of investments

Purchase/sale of business

Other sources

Cash from financing

Change in stock

Change in debt

Cash dividends paid

Cash from other sources

Net change in cash

Free cash flow

Palantir Technologies, Inc. engages in the business of building and deploying software platforms that serve as the central operating systems for its customers. It operates under the Commercial and Government segments. The Commercial segment focuses on customers working in non-government industries. The Government segment is involved in providing services to customers that are the United States government and non-United States government agencies. The company was founded by Alexander Ceadmon Karp, Peter Andreas Thiel, Stephen Cohen, and Nathan Dale Gettings in 2003 and is headquartered in Denver, CO.