Palantir Struggles To Deal With Exponential Demand

You have probably all guessed that Palantir is my latest favourite stock. The shares are on an extraordinarily high valuation and have risen dramatically in 2024. This is encouraging profit-taking. Palantir is a share which depends heavily on newsflow. Good newsflow keeps the shares climbing but in the absence of news that high valuation makes them fall.

Batshit crazy (his own words) CEO and co-founder, Alex Karp, says the software sells itself and demand is virtually unlimited. This makes me wonder why revenue is not growing even faster. The latest revenue growth was 31pc, an acceleration on the previous quarter but hardly exponential.

Part of the reason may be the historical dependence on sales to the three-letter government agencies, the military and governments in general. All that bureaucracy makes deals lumpy and out of the company’s control.

More recently Palantir has discovered the private sector where decisions can be made much more quickly creating the potential for rapid growth. Palantir gave examples of the speed of commercial customer decision-making in its latest presentation.

The technology delivers what it promises.

This is producing dramatic growth in Palantir’s commercial business.

The number of customers is up fivefold in three years! Yet, at 321, it is a fraction of an estimated 25,000 potential customers in the US alone. It is easy to see why Palantir could be at the beginning of a spectacular growth charge.

There is a possibility that the software could go viral with customers eager to adopt it to stay competitive with rivals and deliver the performance their customers expect. The global implementation of AI could be a phenomenon of epic proportions with Palantir at the forefront.

Furthermore, they are using it themselves to become as efficient as possible. Karp may be a bit crazy but so is Musk and boy does he get results. Musk’s journey to becoming the richest man in the world may be a staging post to his becoming the most consequential figure on the global stage.

Palantir’s US government revenue growth is hardly slow.

I believe Palantir is just in the foothills of its growth story.

This is still only the beginning.

The growth of our business is accelerating, and our financial performance is exceeding expectations as we meet an unwavering demand for the most advanced artificial intelligence technologies from our U.S. government and commercial customers.

The world is in the midst of a U.S.-driven AI revolution that is reshaping industries and economies, and we are at the centre of it.

Our revenue last quarter reached a record $726m, representing a 30pc increase from the same period last year as we continue rapidly scaling our business.

The year-over-year growth rate of our revenue has increased over the past six quarters, rising from 13pc in Q2 2023 to 30pc in Q3 2024. This is an ascent that we always believed was possible and have worked tremendously hard to achieve.

Shareholder’s letter, Palantir, Q3 2024, 4 November 2024

The group is doing a ton of new business.

The scale of Palantir’s ambitions is as big as anything I have ever seen.

A juggernaut is emerging. This is the software century, and we intend to take the entire market.

The unrelenting march of our business has been driven by an early and decades-long investment in the technical infrastructure that is now making the large language models that have reshaped our world useful and valuable to large enterprises.

Shareholder’s letter, Palantir, Q3 2024, 4 November 2024

Share Recommendations (3 January 2025)

Palantir. PLTR

Strategy – How About Buying Some Palantir

2025 and I am still around. That’s good. I imagine some of you feel the same. I am listening to a duet with Celine Dion and Luciano Pavarotti. There is so much wonderful music out there. Tonight I am going to a concert with The Animals. Think House of The Rising Sun. Can they still cut it? I have no idea. Hopefully, they serve decent cocktails at the venue and I won’t care.

My date for the evening can’t come so shock, horror, I may have to take my wife.

As I write Palantir still seems to be in the grip of profit-taking. The next figures, due in 40 days, on the 12 February, not the 13th as suggested on the chart need to be good. This means growth needs to continue accelerating. If Palantir is to become a (the) software giant of the 21st century it requires a period of supercharged growth (between 50pc and 100pc). This is exactly what I think is coming. They have an unbelievable opportunity. They need to seize it.

Their software platform is addressing four huge markets.

The US military.

The US government.

US commercial enterprises.

All of the above globally.

Each of these is a multi-billion dollar opportunity. This is what makes Palantir so hard to value. The present price is not so much a value as a bet which could deliver spectacular rewards.

As of December 2024, there were 10 trillion dollar companies quoted in the US – Apple, Microsoft, Nvidia, Alphabet, Amazon.com, Meta Platforms, Tesla, Broadcom, Taiwan Semiconductor Manufacturing and Berkshire Hathaway (which has a huge investment in Apple). By 2030 I suspect there will be many more and Palantir has the opportunity to be one of them.

There were around 100 USA companies valued at over $100bn in 2018. There will be more now. Palantir, valued at around $170bn, is not on the list. Nor is Applovin valued at $115bn. The day is coming when sub-$100bn will be a small company.