Palantir Stock Forecast: Is PLTR a Buy?

Written by Sean GraytokUpdated: 8th May 2022
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This Palantir Stock Forecast will evaluate the investment potential of Palantir Technologies (PLTR) and help you decide if it deserves an allocation in your portfolio. 

Palantir Stock Forecast: Background 

Palantir is a big data software company that can aggregate massive amounts of data and turn it into actionable insights for the organizations it serves.

The company was founded in 2003 by Peter Thiel and Alex Karp and first began building software for the United States intelligence community, including the CIA, FBI, and NSA.

This is why Palantir has been both secretive and controversial since its founding.

According to Palantir CEO Alex Karp, “The core mission of our company always was to make the West, especially America, the strongest in the world for global peace and prosperity.”

Palantir offers data platforms for government agencies and private corporations alike. 

In general, Palantir’s artificial intelligence and machine learning algorithms run predictive analyses, among other things, to make governments and companies smarter. 

Palantir Stock Forecast: Investment Potential 

We believe the following things need to ring true for Palantir to reach its full potential as an investment:

#1. Palantir is a high-growth SaaS and not a low-margin consulting firm.

Palantir has to show investors that it is a software company and not an expensive consulting firm.

PLTR’s ability to scale will be impacted if it’s more of a low-margin consulting company and less of a high-growth SaaS.

Currently, Palantir’s software is very costly to offer. The company’s growth will be hampered if every contract requires extensive customization before deployment.

Palantir is striving to make its products more robust so they can be launched efficiently and without the need for tailoring.

#2. Palantir books more deals in the private sector

There was a time when Palantir exclusively worked with government agencies. 

Moving forward, the company must penetrate the private sector to reach its full investment potential. 

Palantir is working to diversify its streams of revenue. These efforts will ultimately make the company more robust and less reliant on any one account. 

Additioanlly, there are more opportunities for growth on the commercial side of its business.

While Palantir’s government work is crucial to its core mission, we believe a successful emergence in the private sector will unleash this stock.

There are two sides of the coin here:

  1. Palantir is working with some of the best companies in the world
  2.  There is still plenty of room to grow and ink more deals

#3. Palantir addresses its “$119 billion total addressable market.”

From Palantir’s S-1 filing: “Our market opportunity is significant. We estimate our total addressable market to be approximately $119 billion across the commercial and government sectors.”

Palantir’s penetration rate is currently below 1% of this $119 billion, indicating that the company’s a bit too ambitious or there’s still plenty of room for growth.

Fortunately for Palantir, essentially any business can use its software, hence the massive $56 billion TAM estimate for the private sector.

Today, Palantir’s software is used by customers across 36 industries and in more than 150 countries. Typical clients include those in the drilling, automotive, and aerospace industries.

Although it’s expanding its commercial reach, it is also setting its sights on becoming “the Department of Defense’s operating system.”

While the DoD is unlikely to rely on a single software vendor, Palantir is ahead of the competition when it comes to government clearance.

Palantir is one of 4 SaaS companies with DoD Impact Level 5 (“IL-5”) for Mission Critical Information National Security Systems. Note, the higher the number, the higher the clearance.

The higher the clearance, the more the U.S. government and intelligence community trust the company to handle its private information.

Let’s look at the Impact Levels of other software providers:

  • IL-4 SaaS: Oracle, Salesforce, and SAP
  • IL-2 SaaS: Google and Snowflake

Palantir is trying to become the first SaaS company to reach IL-6. Speaking of Palantir separating from the pack, let’s see what makes Palantir different from its competitors.

Palantir Stock Forecast: Economic Moat

Palantir is building products that other companies don’t build, which is why they don’t have any direct competitors.

PLTR’s software platforms are very expensive to build and are focused on the long-term — a combination that steers the typical SaaS away from this market and into a niche.

Years ago, Wall Street told Palantir not to build these products because there was no market for them.

CEO Alex Karp responded, “I know this looks like something no one needs, but they’ll need it in ten years.”

Simply put, Palantir’s differentiator is that it’s very different. They have no interest in what other companies are doing and have a completely different mandate than the classic software giant that tries to increase profits by removing jobs.

Palantir’s COO, Shyam Sankar: “Most software makes users more similar to their competitors; Palantir makes you more differentiated.”

Additionally, while most SaaS products are trying to remove “Bob in Accounting”, Palantir is preserving jobs by making the frontline workers more necessary.

Once these workers are using the software, they’re adding value to the company that would otherwise require a PhD.

Palantir’s Foundry platform makes these factory workers as valuable as the PhDs and underlying software because of the two-way communication between the employee and software.

Additionally, Palantir is willing to go against the political, moral, and physical status quo of Silicon Valley.

From the company’s S-1 filing on its move to Denver: “The engineering elite of Silicon Valley may know more than most about building software … But they do not know more about how society should be organized or what justice requires. Our company was founded in Silicon Valley. But we seem to share fewer and fewer of the technology sector’s values and commitments.”

Karp refers to tech companies who are distancing themselves from the military-industrial complex, most notably Google, who has backed out of contracts with the Defense Department.

Palantir co-founder, Joe Lonsdale, pounced on another opportunity to differentiate Palantir: “Peter [Thiel] and I built a patriotic company. Google is clearly not a patriotic company.”

Palantir refuses to do business with China or any other authoritative regimes. Palantir believes that the country with the most important and powerful AI will determine the rules. They want that country to be the U.S. or another Western country.

Palantir believes that software is the language of our time; it’s no longer just a luxury attribute that makes a business more cost-effective.

We’re at a point with software where it’s basically binary: institutions and societies that implement software effectively will dramatically outperform in every context.

According to Karp, “We are going to be the most important software company in the world, and people will figure out what that’s valued at over a long period of time.”

Palantir has the potential to become one of the best AI stocks moving forward. 

Palantir Stock Forecast & Analysis: Q4 2021 Earnings

Palantir reported Q4 earnings on February 17, 2022. Let’s see why shares fell after the call. 

  • EPS: 2 cents vs 4 cents expected
  • Revenue: $433 million vs $418 million estimated, up 26% year-over-year
  • Net Loss: $156.19 million (compared to $148.34 million in losses from a year earlier)

Palantir expects to see $433 million in revenue for the upcoming quarter, which was above analyst estimates of $439 million. 

The company plans to maintain its hurdle rate of 30% annual revenue growth.

Here are a couple of other highlights:

  • Commercial revenue grew 47% year-over-year
  • Government revenue grew 26% year-over-year
  • Added 34 net new customers in Q4 2021
  • Closed 64 deals of $1 million or more, 27 of which are $5 million or more and 19 of which are $10 million or more

Shares of Palantir fell as much as 15% after the release. 

PLTR Stock Forecast: The Risks 

It’s important to consider both sides of the trade before buying a stock — let’s identify the potential hurdles this stock may face.

Palantir is over-valued today based on any metric. It is crucial that it demonstrates high-growth behavior in the coming years to justify its SaaS-like valuation.

The company’s ceiling will be much lower if it fails to scale its products and functions as a fancy, low-margin consulting firm.

Next is its high concentration of clients, which makes the company extremely vulnerable to losing a single company or government agency.

Additionally, the company hasn’t been profitable in 17 years, so what is different now? Let’s look at the time it took the tech giants to turn a profit:

  • Amazon (AMZN): 8 years
  • Netflix (NFLX): 6 years
  • Facebook (FB): 5 years
  • Google (GOOG): 3 years

Like these Big Tech companies, Palantir continues to prioritize the long-term over the short. 

It’s important to track the measurable growth metrics to ensure the words from the executives match the actions and performance of the company. 

Palantir Stock Forecast: The Competition

Palantir is playing a different game than the typical software company, which is why it doesn’t have any direct competitors.

It does, however, have competition in individual verticals, like data protection and preparation, for example. Let’s see Palantir’s top competitors:

  • Snowflake (SNOW)
  • Alteryx (AYX)
  • Tyler Technologies (TYL)
  • Splunk (SPLK)

Note that while Palantir competes for government contracts, we don’t consider Lockheed Martin or Raytheon to be Palantir competitors, per se.

Palantir and the large defense contractors work together more than they compete against each other.

PLTR Stock Forecast: Allocation

The right amount of Palantir stock in your portfolio depends on several factors that will be unique to each individual.

However, we can ask ourselves similar questions to find the appropriate allocation.

  • What are my investing goals?
  • Does PLTR get me closer or further away from my goals?
  • What is my time horizon for PLTR?
  • Can I tolerate a 20% decline in PLTR?
  • Are there better AI stocks like CrowdStrike (CRWD) or Nvidia (NVDA)?
  • Do I believe that PLTR can successfully emerge in the private sector?
  • Will PLTR find its footing as a high-growth software company or become a boutique consulting firm?

Palantir Stock Forecast: FAQs

What is Palantir known for?

Palantir is a software company that helps its users make better decisions and adapt to their current situations.

Individuals at all levels of an organization can use Palantir to understand the potential outcomes and side effects of a decision before they execute on that decision.

What is Palantir’s Foundry platform?

Foundry is a first-class data integration and management platform, a comprehensive suite of analytical tools, and an operational platform for business users’ applications.

Foundry represents the digital twin of an organization that enables two-way communication between a company’s digital assets and its real-world operations, allowing teams to feed their unique (human) insights back into the business.

Ideally, it can serve as the central decision support infrastructure for any organization.

What does Palantir’s Foundry platform do?

Foundry is a company’s digital twin that lets it simulate and manage unexpected shocks to its supply chain.

The product translates data and models into knowledge that human operators can use to make better decisions.

The digital twin changes as the organizations themselves evolve in the digital transformation era. This enables companies to adjust toward optimal in every decision they make, for example:

  • Identifying the optimal price to sell inventory
  • Identifying wind turbine positioning to maximize electricity generation
  • Plotting shipping routes that will maximize revenue over the years

What Makes Palantir Different?

Palantir thinks of an enterprise as the sum of the decisions it makes. So it built products to provide integration between all the various silos of decision making within or across organizations.

Palantir is the connective tissue that links optimization to actual operations — by powering “what if” analyses and enabling businesses to treat their operations like code, companies using Palantir’s software can stage and test changes before they are applied.

According to CEO Alex Karp, “The way in which Palantir is providing software in Foundry, Gotham, and its ability to scale through Apollo, will be the way that others try to build software, and the way institutions try to procure software.”

Did PayPal lead to Palantir?

Yes, the early founders of PayPal (PYPL) began using computers to reduce cyber fraud, which eventually led to the founding of Palantir.

Instead of using a reactive algorithm to detect fraud after it happened, they realized the better approach was to use an adaptive human mind against an adaptive opponent.

A human mind that applies its own version of algorithms to data works preventively and can get ahead of malicious actors.

So, they took the technology they built at PayPal to the intelligence community and Palantir was born.

Palantir didn’t want to build a new product for each unique case, though; they wanted to build a scalable product that solved underlying issues and could be available and useful to any enterprise.

What is Palantir Apollo?

Palantir Apollo is the continuous delivery software that powers the company’s SaaS platforms, Foundry and Gotham, in the public cloud and beyond.

Apollo’s continuous and automated updates can be the difference between life and death for Palantir’s customers.

According to PLTR, “Our platforms are often deployed to users in environments where other SaaS could never operate — from the back of a Humvee to the hull of a submarine.”

Why is Palantir not profitable?

Palantir’s software is incredibly expensive to build, resulting in its expenses exceeding its revenue each year since 2003. Additionally, the cost to acquire and service new customer contracts is expensive.

Palantir must function as a high-growth SaaS and not a consulting firm to reach its full investment potential.

We believe this feat is achievable if PLTR’s Foundry platform successfully scales in the commercial sector.

Bottom Line: Palantir Stock Forecast

We understand Wall Street’s divisiveness on Palantir stock — the company hasn’t made money in 17 years, yet its leaders remain focused on the long-term.

However, there’s plenty of room for growth and companies with cult followings tend to do well.

This is not your typical company. Do not expect typical investing results.

This article is for informational purposes only, and it is not intended to be investment advice. Read our editorial guidelines and public equities research methodology to learn more about how we researched Palantir stock.

Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and leading expert in investing and financial management. His work has been cited in leading industry publications, such as InvestorPlace and Business Insider. Sean is interested in the people and technologies that are improving the world.