The Future of Palantir
Palantir Technologies has been one of the hottest companies in the stock market over the past two years. Since going public, its stock price has risen from $10.85 to $25.47, and the hype surrounding the company has been consistent throughout. If we look back to two years ago, the company was scarcely known to the general public. The company’s origins began as “software for the U.S. intelligence community to assist in counterterrorism investigations and operations” (Letenyei 2021). After the terrorist attacks on 9/11, Peter Thiel, Chairman and co-founder of Palantir Technologies, decided to create a company aimed at finding terrorists. Initial payments from the CIA aided Palantir to grow and expand to higher-profile projects while working with the government. Ever since going public, the stock market has observed its volatility and inconsistency in full force. After going public, a surge to $45 in January then a fall back down to mid $20s may be a reflection of the opposing views that exist on the company in the finance and tech communities. While some feel that its future is bright and that expansion from the government to commercial sectors will be very successful and profitable, others feel the dependency on government contracts for revenue is far too risky to invest in. The company has also never made a profit in a given year, which may put into question the real potential in the future. Opinions will always fly around with big companies, but Palantir seems to have a more split opinion than most.
Given the volatility that comes with investing in Palantir, why do so many people continue to throw money into the stock? For starters, the software and data managing markets have some of the highest growth potential in the world. The data industry has a projected 10.2% growth rate for the next six years, which is the highest of any industry in the United States. Data is changing the way many companies work, allowing many industries to become more efficient. Palantir is a major player in this market and has already had some big suitors. Deals with IBM, Amazon, and Airbus show proof of concept and provide hope for the levels Palantir could reach. The size and influence that these companies have could launch Palantir into the forefront of the data and software industries. In a 2020 report filed with the SEC, company officials said, “our software is deployed by one of the world’s leading auto manufacturers across its factories in North America to help ensure quality control on the production line” (Letenyei 2021). Palantir executives’ attempt to enter and grow within commercial industries has been successful given the clients that are using the technology. While this growth is positive for the future of the company, its largest source of revenue still comes from the government and defense industry institutions as Palantir has sizable deals with the US Army, US Navy, and CIA. In the same 2020 report, company officials said, “The U.S. Army uses our software to ensure the readiness of more than one million military personnel and to make decisions across dozens of command structures” (Letenyei 2021). With a strong relationship to United States defense, it's possible that they could grow even more within the industry and even expand to places like police forces or other first responders. With the spending on defense systems at the forefront of politics, the use of Palantir could help trip the spending as it creates a more efficient system. At the end of the day, Palantir brings in about 208 million in revenue from government contracts while bringing in about 133 million from commercial clients.
Palantir has two main software groups: Palantir Gotham and Palantir Foundry. Palantir Gotham is focused on artificial intelligence and defense, which is the software that many of the United States government contracts utilize. Palantir says, “Gotham has surfaced insights from complex data for global defense agencies, the intelligence community, disaster relief organizations, and beyond. Gotham joins and enriches massive volumes of near-real-time data and presents them in a single view that enables users to make faster, more confident decisions, together.” Its ability to help decision-making is super valuable for something as important as national defense, which gives Palantir Gotham an important role in the government. The software was implemented in many high profile jobs such as locating Osama Bin Laden. Gotham is now used throughout many defense sectors, aiding in finding previously untraceable people or objects. Palantir Foundry is more focused on commercial use. The company says, “we’ve embedded with our customers to build Foundry backwards, starting from the most critical operational decisions. We’ve encoded this tradecraft into our product. Today, the world’s most important institutions use Foundry to build safer cars, secure global supply chains, accelerate cancer research, and more.” Given the widespread use that Foundry has the ability to achieve, it is definitely the software with the most potential in the future. Foundry has already been implemented and is a key to Airbus manufacturing. The software was introduced and allowed engineers at Airbus to effectively spot problems in manufacturing. This implementation allows them to analyze massive amounts of data and pinpoint the most efficient way to run the business. Foundry is also key for many pharmaceutical companies. The research and production of new types of medicine and drugs creates massive amounts of data. Foundry utilizes this data to give those who use their software the upper hand compared to their competitors. Palantir software can take messy data and turn it into figures that make sense to almost anyone, which is a huge asset. Both of these softwares have major roles in their respective industries and have room to grow even more.
The world is changing quickly, with many sectors moving towards using Artificial Intelligence for higher efficiency and speed. Where does Palantir sit in this global shift? Well, they are currently right in the middle of this movement to technology and don’t seem to be going anywhere. Data analysis is always expanding, and there is always more data to work with. Something that may put the amount of data in the world into perspective is “100 times more data every day than all homo sapiens have ever spoken in the last 400,000 years. That includes 300 billion emails and 500 million tweets per day. That is why data is the future, and PLTR's future is bright” (Zettler 2021). Data analysis is going nowhere due to the amount of data that enters systems every day. This industry has as bright a future as any of them, which puts Palantir in a great spot.
Peter Thiel’s company has had many occasions of being in the spotlight for negative reasons. Thiel is a former silicon valley venture capitalist who, along with founding Palantir, also was instrumental in founding PayPal. He recently was present in national media due to his outspoken views against Democrats and Silicon Valley, as well as his large support for former President Donald Trump, with Thiel donating over 1 million dollars to Trump’s campaign in 2016. With his strong relationship with the president, Thiel allowed Palantir to engage in many government jobs regarding illegal immigrants. They were said to locate and track undocumented immigrants who had entered the country, aiding ICE (Immigration and Customs Enforcement) in the process. This news was not taken well by the media and even employees of the company who disagreed with the ethics of the work. An issue was reported by Amnesty International that stated “the firm was failing its responsibility as a company to protect human rights with inadequate due diligence into who it is working for” (Sherman 2020). Many Palantir employees have stated they want the company's contracts with ICE to be terminated, and some have even quit their jobs due to the relationship.
Given all of the information that we have about Palantir Technologies, will they be successful in the future? There are a couple of things that must be focused on when answering this question. One is whether or not you can trust the government contracts that they currently have. The fact that the majority of their revenue lies at the hands of the government and a few major clients, who could make the switch to other companies, is a concern given they are still not making a profit at all and even taking losses around $500 billion. Another you may want to ask is whether or not other competitors will enter the market. Palantir’s already long sales cycle would get even longer and less stable if others were successful at entering the market. Add in the controversies and political views, and relationships that may have been stable may soon change. That being said, the possibilities that lie ahead for Palantir are huge. They have the ability to change the way many industries work, which is very exciting when looking for possible investments. With a market that is growing insanely fast at 10% a year and groundbreaking technology in software for both defense and commercial use, Palantir Technologies is surely set up for a successful future but only time will tell whether they will last.
References
Letenyei, D. (2021, May 11). Palantir customers are large defense and commercial institutions. Market Realist. Retrieved November 2, 2021, from https://marketrealist.com/p/who-are-palantir-customers/.
Contributor Brock Ladenheim TipRanks. (2021, August 16). Palantir profitable at present, but future feels flimsy. Nasdaq. Retrieved November 2, 2021, from https://www.nasdaq.com/articles/palantir-profitable-at-present-but-future-feels-flimsy-2021-08-16.
Palantir.com. (n.d.). Retrieved November 2, 2021, from https://www.palantir.com/platforms/gotham/.
Palantir.com. (n.d.). Retrieved November 2, 2021, from https://www.palantir.com/platforms/foundry/.
Zettler, B. (2021, August 2). Palantir (PLTR) Stock: Patience will have a huge payoff in the future. SeekingAlpha. Retrieved November 2, 2021, from https://seekingalpha.com/article/4444109-palantir-is-about-data-and-data-is-the-future.
Chan, R. (2019, August 22). Palantir workers are split over the company's work with ice, but CEO Alex Karp won't budge despite concerned employees' petitions. Business Insider. Retrieved November 2, 2021, from https://www.businessinsider.com/palantir-employees-ice-petition-alex-karp-2019-8.
Sherman, N. (2020, September 30). Palantir: The controversial data firm now worth £17bn. BBC News. Retrieved November 2, 2021, from https://www.bbc.com/news/business-54348456.