Palantir Jumps 30% on Earnings News

Christian DeHaemer

Posted February 6, 2024

Palantir Jumps 30% on Earnings News

When you hear the word “Palantir” your first thought likely goes to the crystal balls that were made by the Elves of Valinor in the First Age and were used for communication and seeing the past.

However, today we are talking about Palantir Technologies (PLTR) a company that builds and deploys software platforms for the intelligence community in the United States to assist in counterterrorism investigations and operations.  They are also on the forefront of AI for commercial use and this segment is hitting on all cylinders.

Last night this tech company announced earnings and the stock price jumped 30% to $21.61 today.  

I love PLTR as a trading vehicle.  My readers have made nice returns on a couple of PLTR trades over the past year as the AI bubble ramped up.  That said, I’ve been holding off recommending new buys since the stock doubled in June and then spent the last eight months consolidating.

The big question was just how much of the AI stock run was sizzle and how much was steak?  I was particularly concerned due to the large segment of Palantir’s revenue that came from government contracts.  The government is notoriously slow to award contracts and even slower to pay out.

Well, it turns out that we are sitting on a tomahawk cowboy cut beef like you get in steakhouses near Houston.  AI is real.

The company on its conference call said:

2023 was a tremendous year of opportunity and growth for our company, with U.S. commercial at the forefront, which was meaningfully driven by AIP as the product and bootcamps as the go-to-market motion. We closed out the year with $608 million in fourth quarter revenue, representing 20% year over year and 9% sequential growth. Our commercial business surpassed $1 billion in revenue over the last 12 months, a noteworthy milestone.”

“And our fourth quarter commercial revenue grew 32% year over year. AIP and bootcamps are accelerating our business, particularly in U.S. commercial, where fourth quarter revenue grew 70% year over year.”

The company does AI learning bootcamps to teach organizations how to use its products.  They did more than 560 of these bootcamps last year and gained a lot of sales from them.

Again, from the conference call:

 “We’re already seeing evidence of bootcamps helping to significantly compress sales cycles and accelerate the rate of new customer acquisition, which rose to 22% sequentially for U.S. commercial in Q4 versus 12% and 4% in Q3 and Q2, respectively. And we more than doubled the number of U.S. commercial deals.

Just to name a few, we signed deals over $25 million each with one of the largest car rental companies, one of the largest telecommunication companies, and one of the largest pharmaceutical and biotechnology corporations in the world. And then, we also signed deals over $10 million each with an American consumer packaged goods holding company; an American automotive seat and electrical systems manufacturer, a comprehensive health network in the Midwest; and a large scale battery manufacturer. In addition, we signed deals over $5 million each with an American bank holding company, a horse racing regulatory organization, one of the world’s largest equipment rental companies, and one of the largest independent nonprofit cooperatives in the quick-service restaurant industry. And these are just a few of the examples.

Out of these deals, we’re seeing several archetypes emerge as a result of AIP. First is the new customer who attends a bootcamp and signs an enterprise contract shortly after. For instance, an American cable television provider signed a nearly $3 million deal following cold outreach on LinkedIn that led to a five-day bootcamp, then an enterprise agreement, all in the span of last quarter.” 

What this tells me is that corporations are eager to buy AI products, that it works and it has legs.  To paraphrase Churchill we are not even at the end of the beginning for AI.  

Palantir has a trailing p/e of 238 with a forward p/e of 63 which is expensive by any measure.  They trade at 17 times sales with a market cap of $36 billion.  But the price over earnings growth (PEG) is only 1.02.  The rule of thumb is that a peg under 1 is a buy as the company will grow into its p/e.  So, given that it’s a market darling one could make an argument that it’s not that overvalued.  Or at least you can speculate that it will become even more overvalued.

Datadog (DDOG) has a peg ratio of 1.67 for example. Crowdstrike Holdings (CRWD) has a peg ratio of 2.36.  Both have higher p/e ratios.

Overall Palantir’s earnings tells us that the AI segment is more than hype.  The industry is booming and you want to have AI exposure for the next couple of years.  Other companies to watch are Snowflake (SNOW), C3.AI (AI) and UiPath (PATH).

Don’t chase PLTR here but put it on your watch list with the idea to buy it when it fills the gap around $18.50.

All the best,

Christian DeHaemer
Pro Trader Today