What made analysts hit the sell button was evidence that Palantir’s government growth is slowing, and that its application to commercial markets remains iffy.
“If Palantir is ‘just another’ government contractor, why were we paying almost 35 times revenue for the stock?” investors asked. And I’ll ask: Why are you even paying 31.3 times revenue?—i.e. the price to sales ratio on November 10.
That’s what Palantir has yet to prove.
More important, why are you paying a premium for a company that rejects the main technology lesson of the century?
That lesson is open source. The more eyes you get on the code, the faster the code base can rise. Even if most benefits go to users, open source works best. Even Microsoft (NASDAQ:MSFT) finally surrendered to it. And in the process created a $2.5 trillion in market cap with its Azure cloud.
Palantir software is completely proprietary. So far as users go, it’s a black box. Agencies buy what it does, and what it does can be cool. The software did, after all, help find Osama Bin Laden.
But most defense software contractors sell for half Palantir’s valuation, about 13-15 times sales. In the secrets business, software is the ultimate secret. Palantir thinks it can generate 30% annual growth through 2025 with its commercial offering, Palantir Foundry. Palantir recently funded 10 start-ups to prove Foundry’s value in industries ranging from mining to media.
No Politics, Thanks
But that Palantir chose to highlight a mining project illustrates how devoted it is to politics. Tech workers tilt left because creativity is the gating factor to growth in a technology age. Creative people can come from anywhere, love anyone, and require nurturing to do their best work.
But that’s not how co-founders Alex Karp and Peter Thiel roll. Thiel, in fact, is founding an explicitly right-wing university in Austin, Texas/ Any academic endeavor that starts by rejecting open inquiry will fail, but Thiel certainly has the right to throw money at it. Just as Karp has the right to his devotion to a national security state.
Personally, I would rather toss politics aside when analyzing Palantir. But that’s hard because its stance on behalf of closed software is inherently political. Only the select get knowledge in a closed source world. I’ve covered technology for 40 years now, and if I know anything is wrong, it’s that. You can build a niche on proprietary advantage, but you can’t run the world. Microsoft could buy Oracle (NASDAQ:ORCL) nearly 8 times over because Oracle was late to the open source cloud.
The Bottom Line on PLTR Stock
There are also pension funds that loaded up on Palantir before the earnings came out.
Personally, I wouldn’t touch Palantir stock with a barge pole. It’s not because of Peter Thiel’s politics. It’s because he and Karp reject the technology that made the cloud, and the business approach that can save the world. It’s called working together, with everyone’s eyes on the prize, and it works.
On the date of publication, Dana Blankenhorn held a long position in MSFT. 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 the holidays he has a collection of COVID-19 stories https://www.amazon.com/Bridget-OFlynn-Virus-COVID-19-Pandemic-ebook/dp/B09K8PSQC8/ at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.