Palantir (NYSE:PLTR) stock is popping 5% higher on Monday despite less-than-encouraging news. Recently, The Wall Street Journal pointed out that the company is suffering from slowing growth in government deals. Of course, that backdrop adds pressure to Palantir’s upcoming fourth-quarter earnings report, presenting PLTR stock in a mixed light.
On the surface, the spike in Palantir’s market value today seems strange next to the WSJ report. Essentially, the premise is that, while the data-mining specialist initially used its skills to help federal agencies like the U.S. Department of Defense, these government clients are now increasingly looking at competitors for less expensive and more technologically flexible solutions.
RBC Capital Markets analyst Rishi Jaluria summed up the problem:
“Government agencies are changing the way in which they work with Palantir […] They don’t want to put all their eggs in one basket because Palantir is expensive.”
Interestingly, Palantir CEO Alex Karp told WSJ that working with the U.S. government is a “cyclical and difficult” business that doesn’t make revenue as predictably or steadily as commercial business. Logically, then, investors will be looking for expansion of the top line in the company’s upcoming Q4 disclosure, which is set for Feb. 5.
In Q4 2022, Palantir posted sales of $509 million on net income of $31 million. Notably, the latter figure marked the beginning of a four-quarter streak of profitability for the company.
Not Everything Appears Pessimistic for PLTR Stock
Adding pressure to the bullish narrative for PLTR stock is the U.S. Army, which is a huge Palantir customer. Fundamentally, the Army wants to “avoid becoming too reliant on any single company or technology.” Additionally, the military branch wants “more control over its own data.” This last point has been a matter of contention among other Palantir U.S. government customers.
Another source of conflict centers on Palantir’s longstanding relationship with U.S. government agencies, ironically. For example, advocacy groups as well as healthcare organizations and politicians in the U.K. have expressed concerns about Palantir’s access to patient data. Back in November, the company inked a deal with the United Kingdom’s National Health Service (NHS) agency to help overhaul the country’s healthcare system.
Still, not all elements facing PLTR stock carry a downbeat connotation. Notably, Palantir has also forged contracts with enterprises like Exxon Mobil (NYSE:XOM) and Tyson Foods (NYSE:TSN). Commercial revenue has “roughly doubled” in the past three years, per WSJ, making up approximately 45% of overall sales. Plus, the company unveiled its new artificial intelligence (AI) data platform last spring.
As for the spike up in PLTR stock, it’s quite possible that retail investors — who own more than half of the shares according to WSJ — could be attempting to blow up short call options. Conspicuously, Fintel’s options flow screener — which exclusively filters for big block transactions likely made by institutions — shows millions of dollars of premium received among large traders writing call options.
Essentially, written calls represent wagers that the underlying security will not rise materially above the listed strike prices. If it does, call writers are on the hook for meeting the terms of the contract; that is, providing shares at the lower strike price.
Why It Matters
At the moment, Wall Street analysts rate PLTR stock as a consensus hold. This assessment breaks down as four buys, four holds and six sells. Overall, the average price target sits at $13.45 per share, implying about 24% downside risk.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
