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With Palantir Technologies, Leave Politics Aside and Focus On the Foundry

Palantir Technologies (NASDAQ:PLTR) is one of the most talked-about stocks on Wall Street. It doesn’t need to be. Even after the PLTR stock price increased more that 128% in the last 12 months.

A close-up shot of a hand on a screen with the Palantir (PLTR) logo.
Source: Ascannio / Shutterstock.com

Palantir is a typical growth stock of our time. It did almost $1.1 billion in business last year. It should do about $1.4 billion this year. It’s not making money, but no one expects that of a business growing at an almost 30% pace. The $49.6 billion market cap is about 35 times expected sales. That’s high, but that’s the market.

The revenue stream looks solid. Palantir regularly closes new federal contracts. Its secret sauce is data analytics, the ability to quickly draw big insights from huge unstructured data sets.

It’s as if International Business Machines (NYSE:IBM) Watson actually worked. So, what’s the big deal?

Hype Machine Stokes PLTR Stock

Politics keeps Palantir in the news. It’s the hype machine that stokes PLTR stock.

CEO Alex Karp is an unabashed fan of the national security state and of his proprietary business model. Both are out of fashion, but Palantir has made Karp a billionaire. When Karp talks, people listen.

One of those people is co-founder and chairman Peter Thiel, an unabashed fan of former President Trump. He’s bankrolling Trump’s wing of the Republican party.

He also likes biting the hands that feed him, condemning the “surveillance AI” that bankrolls Palantir and backing Bitcoin as a replacement for fiat currency. Reporters now follow Thiel’s investments like he’s the next Warren Buffett of Berkshire Hathaway (NYSE:BRK.A) and his politics like he’s the right’s George Soros. Maybe he is.

Analysts Have Their Concerns

The two leaders keep Palantir in the news. What’s keeping Wall Street analysts up at night is a different thing. They’re concerned about Palantir’s opaque business model and whether it can maintain its growth in commercial accounts.

So far, so good. In its second-quarter report, Palantir reported 90% year-over-year growth in commercial work, with the customer count up 32% in one quarter. Cash flow was positive, although there was a loss on the bottom line of 7 cents, which is acceptable for a growth stock.

Palantir is next due to report Nov. 2. Analysts are buying the company’s estimate of $385 million in revenue. They also expect a small profit of 4 cents per share, roughly $70 million.

Foundry Could Be Game-changer

The problem is that as numbers get bigger, they get harder to grow. Expected Q3 revenue is just $10 million ahead of Q2. Profits are nice, but investors are paying for growth. Based on its current estimates, analysts tracked by TipRanks see PLTR stock as more than fully valued. Half want people to sell it.  Hedge funds are also, reportedly, dumping it.

What could change the trajectory is Foundry, which it calls a “central operating system” for data that can drive decisions. Palantir recently funded 10 start-ups as part of its “Foundry for Builders” initiative. Each is trying to use Palantir technology to transform a different industry — construction, drugs, media, renewable energy, etc.

Foundry is offered as a subscription service but includes everything from hosting cloud data to driving decisions.

The Bottom Line on PLTR Stock

If you’re interested in buying PLTR stock, ignore its founders. Ignore their politics. Focus on Foundry.

Despite decades of hype over artificial intelligence, companies have yet to fully capitalize on their enormous data warehouses. AI can drive little decisions that are made inside cloud-based computer systems. It has yet to prove it can replace a CEO, that it can drive the big decisions creating growth and profit.

That’s Foundry’s ambition. Clouds have replaced jobs on the sales floor, the shop floor and in middle management. If Foundry can replace those at the top, that’s a real revolution.

On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. Just in time for Halloween he has a collection of COVID-19 stories at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.


Article printed from InvestorPlace Media, https://investorplace.com/2021/10/with-palantir-technologies-leave-politics-aside-and-focus-on-the-foundry/.

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