Unleashing the Beast: Can Palantir’s AI-Fueled Frenzy Keep Its Record-Breaking Streak Alive

The US Stock Investment Network learned that recently, the stock price of Palantir Technologies Inc (PLTR), the big data analysis software giant known as the “AI Big Bull Stock”, has soared driven by strong performance. The outstanding performance in the third quarter of 2024 and the comprehensively updated full-year guidance allow investors to see the company’s positive prospects for the development of artificial intelligence.

The market now recognizes Palantir’s sustainable growth, supported by its expanding artificial intelligence platform (AIP). Sustainable growth alleviates concerns about Palantir’s ability to maintain high growth. In the opinion of analysts, Palantir “has greater upside potential due to its position in the artificial intelligence field and the new product cycle after AIP.” Confidence appears to still hold true in the next quarter.

Bullish case

Palantir’s U.S. commercial revenue continues to accelerate and is expected to contribute more in the future. In the third quarter, the company’s U.S. market revenue increased by 44% year-on-year and 14% month-on-month to $499 million. Among them, U.S. commercial revenue increased by 54% year-on-year and 13% quarter-on-quarter to $179 million, higher than the $159 million in the previous quarter. The U.S. commercial business is slowly but surely becoming a more core part of Palantir’s business and is expected to achieve greater upside by 2025.

Palantir is building Warp Speed, a new product designed to improve manufacturing efficiency, on its AIP platform to better prepare existing customers for new customer conversions and expansion. While the company didn’t provide much new information about the product during this quarter’s conference call, Warp Speed ​​will continue to be a long-term growth catalyst for the business. After this quarter’s conference call, “substantial new product investments, enhanced OSDK, more ergonomic computing modules, multi-modal data planes, etc.” are still worthy of investors’ attention.

Palantir’s U.S. government revenue is expected to continue accelerating. With tensions in the Middle East showing no clear signs of abating, U.S. government revenue should accelerate further in the coming quarters. The U.S. government business had its strongest sequential growth in 15 quarters in the quarter, driven in large part by the U.S. Department of Defense business, which grew 21% year over year.

To put this into perspective, in the third quarter, U.S. government revenue increased by 40% year-on-year and 15% quarter-on-quarter to $320 million. Over the past two quarters, in the first quarter, U.S. government revenue increased 12% year-over-year and 8% sequentially to $257 million. In the second quarter, similarly, U.S. government revenue increased 24% year-over-year and 8% quarter-over-quarter to $2.78 billion dollars. Palantir has maintained good growth momentum in this field.

In terms of stock price, the stock has also risen nearly 40% in the past month, outpacing the S&P 500 index’s approximately 3% increase.

Other performance data

The third quarter once again proved that Palantir’s growth momentum is strong. During the quarter, the company’s U.S. total commercial contract value (TCV) reached $297 million, up 13% sequentially, and total remaining transactions in the U.S. commercial business increased 73% year-over-year and 7% sequentially. The number of U.S. commercial customers reached 321, a year-on-year increase of 77% and a month-on-month increase of 9%.

Total revenue was US$726 million, a year-on-year increase of 30% and a month-on-month increase of 7%, which was higher than market expectations. It was the fifth consecutive quarter in which revenue growth exceeded 30%. Revenue from Palantir’s top 20 customers also increased 12% year-on-year, reaching $60 million per customer.

The company’s consolidated revenue growth and adjusted operating profit margin for this quarter were as high as 68%, an increase of 4 points sequentially as measured by the Rule of 40 (referring to if the company’s revenue growth rate + the company’s OP profit margin > 40%) indicator.

The government sector increased by 33% year-on-year and 10% month-on-month to reach $408 million. International government revenue was $89 million, a year-on-year increase of 13% and a month-on-month decrease of 5%. This is due to the surge in revenue in the second quarter and seasonal factors. In the opinion of analysts, this sequential downward trend will not continue until 2025. Even if it continues to decline, U.S. commercial business is expected to make up for the weakness. The U.S. dollar net retention rate was 118%, an increase of 400 basis points from the previous quarter. This growth was supported by new customers and expansion of existing customers. The strength of the U.S. business is not yet evident as the net retention rate does not include new customer revenue acquired in the past 12 months, but this does not prevent the business from strong growth in the future.

In terms of profitability, the company generated $420 million in operating cash and $435 million in adjusted cash flow, as shown in the chart below. This reflects profit margins of 58% and 60% respectively. The company also generated record adjusted free cash flow of $1 billion, with a trailing twelve-month margin of 39%. The company ended the quarter with $4.6 billion in cash, short-term U.S. Treasury securities and cash equivalents. Palantir also repurchased approximately 1.8 million shares as part of its stock repurchase program.

Valuation

Currently, Palantir has a market capitalization of $114.5 billion and an enterprise value of $110.2 billion. The stock was up more than 170% in the past 52 weeks as of Wednesday, and its beta of 2.70 reflects higher-than-market price volatility. The company’s 2024 price-to-sales ratio currently stands at 31.7, which is higher than its peer average of 9.9, according to Refinitiv data. Palantir’s valuation remains a concern for investors.

However, Palantir’s performance, supported by its performance, seems to be more promising to exceed expectations again next quarter. Currently, analyst consensus on the stock remains mixed. According to Refinitiv data, more than 52% of Wall Street analysts have a “hold and wait” rating, about 16% of analysts have a “strong buy” rating, and more than 5% of analysts have a “buy” rating. About 10% of analysts have a “strong sell” rating, while only 3% have a “sell” rating. The upward trend in the mean and median price targets indicates increased optimism for Palantir. The median price target was $24.50 in August, reached $28 in September and October, and is now $31.50. Likewise, the average price target was $24 in August, hit $25.6 in September, $27.38 in October, and now stands at $33.2.

Looking forward to the next quarter, Palantir management expects revenue between US$767 million and US$771 million, higher than market expectations of US$744 million, and adjusted operating profit of US$298 million to US$302 million. As for the full year, Palantir raised its guidance across the board and now expects revenue in the range of $2.805 billion to $2.809 billion, above market expectations of $2.76 billion. U.S. commercial revenue is expected to be $687, a growth rate of 50%, and adjusted profit is expected to be $1.054 billion to $1.058 billion. Adjusted free cash flow guidance is expected to exceed $1 billion.

Military artificial intelligence Maven

It’s also worth noting that Palantir signed a new five-year contract to expand its data analytics and artificial intelligence decision-making tool (Maven Intelligence System) capabilities to the entire U.S. military, including the Army, Air Force, Navy, and U.S. Marine Corps, among others. Navy Vice Adm. Frank Whitworth said the partnership “equates to ensuring we keep America safe and ready.”

According to reports, by providing artificial intelligence through the Maven intelligent system, customers such as the 18th Airborne Forces can reduce the workload from 2,000 staff during Operation Iraqi Freedom to only 20.

To date, Palantir’s capabilities enable it to automate the insurance underwriting process for the largest and most well-known insurance companies in the United States, with a fleet of 78 AI agents. To put things into perspective, a process that used to take two weeks to complete now takes just three hours. This not only saves time but also saves labor costs exponentially. For the U.S. government, Palantir has automated the external information disclosure process in three hours instead of three.

Summarize

Palantir has a vision and goals, and investors are seeing it quarter after quarter. Overall, Palantir remains a relatively undisputed player in an industry with growing demand, and the company’s stock price will ultimately continue to reflect that.

Information source: US stock investment network TradesMax.com US stock big data StockWe.com