Under the Spotlight Wall St: Palantir Technologies (PLTR)

Palantir Technologies ($PLTR) enjoys a mystique rare among other Wall Street stocks, given its customers include special forces and spy agencies. There’s also the claim – neither confirmed nor denied – that its analytics software helped hunt down Osama bin Laden.

The company sits at the intersection of AI, big data and defence. That makes it a magnet for militaries and intelligence agencies aware that the nature of war and conflict is rapidly changing. In an age of uncertainty and shifting geopolitical power, the ability to use AI and data to make faster and smarter decisions is vital to maintain an advantage over adversaries. 

Co-founded by Silicon Valley billionaire Peter Thiel (who is chairman) and CEO Alex Karp in 2003, Palantir received early funding from the Central Intelligence Agency’s venture capital unit. Contracts with the U.S. Department of Defence and government agencies have been its bread and butter, but its suite of AI-powered analytics has drawn a growing roster of corporations keen to integrate AI into their decision making. $PLTR shares are up 484% over the past year. 

Mission critical

Karp is explicit in his support for the U.S. military and intelligence agencies. He believes developing software capabilities that are more lethal and precise than those of its adversaries is ‘uncontroversial and nearly uninteresting.’ Let’s be clear: this isn’t a stock for investors squeamish about military technology. 

But then again, nations have a right to self-defence: Ukraine is using Palantir’s tech in its war against Russia. Its AI-powered analytics platforms integrate satellite imagery, drone footage and ground reports to help target Russian positions. The Ukraine war has focused the minds of military planners on data as a weapon: the North Atlantic Treaty Organisation (NATO) acquired Palantir’s Maven Smart System in March. But it’s the U.S. military that is a prime focus for the company: just this week the Pentagon increased its contract for Palantir’s Maven Smart System to over US$1b, while the U.S. Special Operations Command recently extended a contract.  

The demand for its solutions is reflected in Palantir’s earnings. Q1 revenue grew 39% year-on-year (YoY) to US$884m. Q1 total U.S. revenue increased 55% YoY to US$628m, with U.S. government revenue up 45% YoY to US$373m. The strong start to the year led the company to upgrade its full year guidance: FY25 revenue is expected to be US$3.890b-US$3.902b, up from an initial estimate of US$3.741b-US$3.757b. Adjusted income from operations is expected to be US$1.711b-US$1.723b, up from previous guidance of US$1.55b-US$1.567b. 

Private eyes

Some of the world’s biggest companies have become Palantir customers, as they look to integrate AI-driven analytics into their businesses.

Palantir’s suite of tools is available through leading cloud platforms like Amazon Web Services and Microsoft’s Azure. Clients include Airbus ($EADSY): its aircraft expertise is combined with Palantir’s analytics on a platform that helps clients operate their fleets. In Australia, Palantir has a three-year partnership with supermarket operator Coles Group ($COL) to better manage its supply chain and workforce. Miner Rio Tinto ($RIO) recently extended its contract for another four years. 

This growing corporate interest is driving strong revenue growth: Q1 U.S. commercial revenue grew 71% YoY to US$255m. The company booked its highest quarter of commercial contract value of US$810m, up 183% YoY. Given this strong growth, Palantir lifted its full-year commercial revenue guidance to in excess of US$1.178b, up from prior guidance of US$1.079b. 

Top tier

Palantir is one of the hottest stocks on Wall Street and the Stake platform. Its shares have rallied 65% from their April lows, helped by the upgrade to full-year guidance. Its market cap of US$288b has allowed it to vault over Salesforce ($CRM), and secure a spot among the top ten U.S. tech stocks. It was included in the Nasdaq 100 Index in December: this has attracted additional flows into the stock from fund managers and ETFs. 

This momentum spurs bulls like Wedbush’s Dan Ives, who reckons the stock can get to US$140 and might benefit from spending earmarked for President Trump’s Golden Dome missile defence system. However, there are other analysts who believe revenue growth is already priced into the stock and that it trades at multiples above similar companies. Deutsche Bank has an US$80 price target. 

On the offensive

Palantir Technologies has rallied on enthusiasm for AI stocks and the global surge in defence spending. 

Cutting-edge analytics are a tactical advantage that’s driving top line growth and higher earnings expectations. But Palantir will need to keep delivering contract wins to justify its heady valuation – or it might end up in investors’ line of fire. 

This is not financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.