Palantir: The Logic Behind My Decision to Hold Until $500

Palantir is currently trading in the mid $20s, and is up 42% year to date, 155% since it went public in 2020 and 200% over the past year. However, despite this crazy run, I will not be trimming my position and won't even consider liquidating until the stock reaches $500 per share. 

Gotham and Foundry, are not just software products but have now evolved into full operating systems that government and companies operate on. Palantir's Artificial Intelligence Platform, also referred to as AIP, takes this to the next level as it brings large language models (LLMs) to various Foundry applications with a completely custom made fit, which can be deployed in hours. 

Some offer cookie-cutter AI platforms, Palantir gives client a better, quicker and cheaper product with lightning speed, which makes this a no-brainer for companies as a platform of choice. 

Palantir is an expert at creating flexible and dynamic data models (ontology) for its clients. It can pull from various databases in seconds, summarize large data sets immediately, visualize it all and allows any skill level employee to iterate quickly, which means ask a question, get the answer, and then quickly ask either a variant on the initial question or a follow-up question that depends on the answer to the initial question, all in a completely collaborative space within the organization.  

So what about Gotham? its a black box business. Right? Well, not really. 

Here is a story that Palantir once included in their product demos:

In October, a foreign national named Mike Fikri purchased a one-way plane ticket from Cairo to Miami, where he rented a condo. Over the previous few weeks, he’d made a number of large withdrawals from a Russian bank account and placed repeated calls to a few people in Syria. More recently, he rented a truck, drove to Orlando, and visited Walt Disney World by himself. As numerous security videos indicate, he did not frolic at the happiest place on earth. He spent his day taking pictures of crowded plazas and gate areas. None of Fikri’s individual actions would raise suspicions. Lots of people rent trucks or have relations in Syria, and no doubt there are harmless eccentrics out there fascinated by amusement park infrastructure. Taken together, though, they suggested that Fikri was up to something. And yet, until about four years ago, his pre-attack prep work would have gone unnoticed. A CIA analyst might have flagged the plane ticket purchase; an FBI agent might have seen the bank transfers. But there was nothing to connect the two. Lucky for counterterror agents, not to mention tourists in Orlando, the government now has software made by Palantir.

The story is fictional, since Palantir is not allowed to share real use cases from Gotham, but it is a very accurate representation of what made $PLTR top 20 clients pay $60 million a year for this platform... PLTR is becoming the furthest thing from the black box some perceive it to be, as its U.S. commercial revenue grew 70% YoY and by 12% over the past 3 months.

Palantir’s products combine massive amounts of messy, unstructured data to identify anomalies and suspicious trends.

Palantir has ALWAYS focused on investing in future growth over maxing out current profitability and its starting to pay off. 

In Q4 2023, Palantir’s revenue reached $608 million, growing by 20% YoY. Palantir had $324 million in government revenue for Q4— up 11% from last year. Commercial revenue was $284 million—up 32% from last year.

The US Commercial revenue in Q4 surged by 70% YoY, reaching $131 million.

The U.S. customer count grew by 55% YoY as Palantir is guiding for at least 40% growth in the U.S. commercial segment for the year. 

The top 20 customers' contribution to total revenue of Palantir dropped from 57% in 2021 to 49% as of December 2023, while at the same time, the average revenue from PLTR's top 20 customers increased by 11% YoY in Q4 to $55 million from $49 million, and while billings increased 56% from $387 million to $605 million.

Palantir is currently operating at a 48.71% FCF margin as the average revenue per customer (ARPC) is $4.5 million, and as the client concentration risk drops every quarter.

I think the numbers speak for themselves.

There are plenty of risks, and any stock, Palantir included, can go to $0 immediately. This is not a recommendation to buy and not financial advice and should not be taken as such. Having said that, In my personal opinion, we haven't seen nothing yet. Palantir has the potential to be the most important software company in the world over the next decade.