PLTR - Palantir: The Rise Of A 'Recession-Resistant' Tech Titan

2023-06-09 08:27:11 ET

Summary

• Palantir's growth rates are starting to stabilize. H2 2023 could positively impress investors.
• Palantir is "recession-resistant" because its customer base is mostly large enterprises and the US government.
• The stock is not cheap, but I believe that its future cash flows make it a price worthwhile paying.

Investment Thesis

Palantir (PLTR) has all the chances to retain its momentum and extend the rally of its stock with the release of its new AI platform ("AIP"), scaling its business, and creating additional shareholder value, while also demonstrating growth, profitability, and success in government and commercial sectors, making it an attractive investment opportunity with a promising growth story.

Why Palantir? Why Now?

A few weeks ago I said,

Palantir is a stock that I recommended at $10 to DVR. It fell back to $7.50 promptly and I broke my rule of selling when the stock falls 20%. Pushing beyond my stop-loss.

Why did I break this rule? Because I just didn't want to give up my cherished idea. Yes, there's a certain amount of commitment bias, but at the same time, I recognized that pessimism in the market in the past 2 months has been so loud, that I wasn't sure that Palantir was being given enough merit by investors.

The world is intent on decoupling from the de-globalization trend. This is very real and happening. This de-globalization will lead to mounting geopolitical tensions.

Case in point, a few weeks ago we saw the news that Micron ( MU ) may struggle to sell some of its chips in China. The market was quick to disregard this concern, but the concern is lurking. And rapidly rising. Even if the market isn't talking about this. You'd have to be deaf and blind to believe that the de-globalization trend isn't real.

Moving on, Palantir's position in the AI market and its recent launch of the Artificial Intelligence Platform ("AIP") provide a significant opportunity for the company to outperform in the second half of 2023.

Leveraging its expertise in data analytics and its long-standing presence in the industry, Palantir aims to monetize AI and expand its customer base by offering large language models for private data sets. This strategic move is expected to drive growth and contribute to the company's overall success in the evolving AI landscape.

I maintain that the most important aspect of any healthy business is growth in the company's customer base.

I say this in nearly every analysis you read from me.

What you see above is a reflection of this, with Palantir's customers increasing from 277 in last year's Q1 2022 to 391 in the most recently reported quarter. Every quarter, Palantir's customer base increases by small increments.

Revenue Growth Rates Will Turn Higher in H2 2023

To summarize my core bull investment case: Palantir's business is stabilizing. And on the back of this stabilization will come a "fresh" investor base.

Over the past couple of years, Palantir's growth rates fizzled out, and that worried investors. Also, its share price collapsed, which put many investors off the name.

But with time, the business has stabilized and there's more predictable growth, at somewhere around mid-10s% CAGR.

PLTR Stock Valuation -- Priced at 45x Non-GAAP EPS

Let me be frank, Palantir is not a cheap stock.

Palantir's non-GAAP EPS is priced at approximately 45x, which makes it relatively pricey. Furthermore, it is worth noting that a significant portion of its non-GAAP profits stems from stock-based compensation.

Nevertheless, it is evident that Palantir enjoys robust partnerships with influential entities in the United States, and these partners are experiencing rapid growth.

Additionally, as I have emphasized repeatedly, the most reliable indicator of a company's potential is its customer growth rates. As long as the platform continues to attract an increasing number of customers, I will not be overly harsh in assessing a stock based solely on its valuation.

The Bottom Line

Palantir presents a compelling investment thesis as a "recession-resistant" business with increasing US customer contacts.

The company is focused on deploying large language models and developing its strong connections with key partners to position it for future growth.

While Palantir's stock valuation may appear high, customer growth rates and the potential of AI technology drive the bullish case for the company.

What's more, the business is far from dead. Everyone wants to buy a cheap business at a discount and to allow it to compound for a long time. I believe that Palantir will be around for many years to come. But I don't believe we'll see its share price stay around $15 per share for a prolonged period of time.

The feedback I get from people is that they'll wait until the stock dips lower to where it was a few weeks ago. I retort, who cares what the price was? All that matters is where the price is headed.

For further details see: