Palantir Technologies (NYSE:PLTR) stock rose 5.5% overnight after expanding its partnership with Microsoft (NASDAQ:MSFT).
Shares were expected to open at around $8.75, a market capitalization of $18.5 billion.
Palantir reported its first profit during the December quarter, with net income under GAAP of $31 million, 4 cents per share fully adjusted, and revenue of $508 million. For the full year, Palantir had a revenue of $1.9 billion.
PLTR Stock: The New AI Play?
Palantir is known for a proprietary data analysis system called Gotham, and a subscription service called Foundry, designed to get quick insights from huge data sets. Machine learning is a vital artificial intelligence (AI) capability.
Palantir is primarily a government contractor, with much of its money coming from defense work. Close ties with the U.S. government, and the conservative politics of co-founders Alex Karp and Peter Thiel, continue to generate controversy in markets like Germany. But conservative governments in Europe are now turning to Palantir for work on non-defense data sets as well as defense.
Palantir’s relationship with Microsoft is built on defense. It has now secured FedRAMP authorization to support key Department of Defense (DoD) workloads on Azure. This should increase Palantir’s use among defense contractors.
Foundry became available on Microsoft’s Azure cloud in January.
Palantir shares were hit hard by last year’s tech wreck, falling from a high of $28.60 to just $6.40 at the start of the year. Analysts are seeing the small profit as a reason to buy.
However, Palantir remains an expensive stock even at its current low level. You’re paying nine times revenue for growth of $400 million each of the last two years. That’s 24% growth in 2022 but 41% in 2021.
What Happens Next?
I have suggested that investors ignore the company’s politics and dependence on government work, focusing instead on Palantir’s growth in the private sector. Government contracting can only take a proprietary software company so far, and Palantir may have already gotten there.
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.
