I’ve been a long-time fan of Palantir (NASDAQ:PLTR). I remember the hype surrounding its stock in the months leading to and after its IPO. A lot of that enthusiasm has seemed to wane though as PLTR stock has been stuck in a holding pattern for the past few months.
However, there is still plenty of upside left in PLTR stock. While there are a few more doubters now, I believe they will be proven wrong by management over time.
Palantir is an Integral Partner of the US government
Palantir continues to be a force in the defense industry. The Big Data software firm recently announced winning additional contracts from the US government. The most recent of which is the $823 million contract for the Distributed Common Ground System-Army Program. This program is part of a general push by the military to modernize its intelligence infrastructure.
It is essential that soldiers have quick and reliable access to data. Modern warfare is fought no longer by large armies but in small targeted skirmishes. This makes data access extremely important. The goal of a modern military intelligence program is to give battalion headquarters the same access to data as a brigade. A unit that commands a few hundred troops should have the same data access as a unit with several thousand troops.
Palantir is supporting this initiative via its Gotham platform. The military uses a wide array of vendors its data is housed and contained in different sources. Therefore the main task of Palantir’s system is to put together all this data to generate important insights.
According to the company’s press release, the Gotham Platform is designed “to support Army Intelligence users worldwide with a globally federated Intelligence data fabric and analytics platform spanning multiple security classifications. This capability will field modern data integration, correlation, fusion, and analytic capabilities that prepare the Army for the next fight against emerging near-peer threats”
Some Analysts Have Turned Bearish
Despite all of these recent wins, there are a few analysts on Wall Street that have turned bearish on PLTR stock. This may have been triggered by the potential loss of the lucrative FALCON contract with Immigrations and Customs Enforcement (“ICE”). The company has earned $111 million in revenues from this contract since 2013.
This roughly translates into $13.8 million on a yearly basis. This is a drop in the bucket compared to Palantir’s 2020 full-year revenue of $1.1 billion. What analysts are worried about is whether or not Palantir’s service is “sticky” or easily replaced. After all, ICE is looking to replace Palantir’s service with a custom-built data-mining and analytics tool. Bearish analysts in general are worried about the strength of Palantir’s defense business and its contracts.
According to an article in Barron’s, Citi analyst Tyler Radke has a negative view of the stock with a price target of $18 implying a 21% downside from current prices. He states that Palantir’s contracts are all structured as “indefinite delivery, indefinite quantity” making it difficult to quantify its true value. William Blair analyst, Kamil Mielczarek also has an Underperform rating on PLTR stock.
I disagree with these takes as I believe secular trends on the importance of data analytics are in Palantir’s favor.
Investor Takeaway
The fact that Palantir continues to win additional long-term contracts from the US government shows the value of its service. Often companies in the tech industry like to “talk a big game”. They throw around buzzword terms like “machine learning”, “Big Data” or “artificial intelligence” yet only have the barebones of capabilities. The true test is whether or not a firm is able to provide value to its clients.
By continuously winning these contracts, Palantir has shown that. Therefore I am confident that the company’s solutions work and are potentially applicable to a whole host of other industries apart from defense. I believe bearish Wall Street analysts have it wrong and Palantir continues to be a stock to own.
On the date of publication, Joseph Nograles held a long position in PLTR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joseph Nograles is a part-time freelance copywriter focused on the financial industry. He has worked in a wide variety of industries from tech to consulting with one of the “big four.” He has always enjoyed analyzing businesses and has been a CFA charterholder for nearly a decade now.
