Big Data Is Big Business
TL;DR
This company is a major government contractor that’s poised to continue breaking out as it dominates an AI niche and embarks on two strategic partnerships with space technology companies.
When we disseminate stock opportunities, we tend to err on the side of caution. Safety-rated investments. Companies with lengthy track records of rising their dividends payments. Industries that are often considered big and boring … but which are proven and consistent.
Inasmuch, when we’ve talked about tech equities, we’ve suggested approaches that are less volatile than owning individual stocks, like low-cost tech-focused ETFs.
Today, we’re bucking that trend.
Though the company we’re highlighting isn’t new (founded in 2003, IPO in 2020) nor is its stock considered a speculative investment, it is heavily focused upon AI data services.
And therein lies the opportunity: The market for data services is projected to grow from $220.2 billion 2023 to $401.2 billion in 2028, and Palantir Technologies (PLTR) is uniquely positioned to profit from that exponential growth.
Big Data, Big Demand
The company, which was co-founded by Peter Thiel (who also co-founded PayPal), has gotten off to a fast start. Since its IPO in September 2020, its stock has risen 230%.
Last year, when Palantir posted its first profit, it was rated the #1 vendor in AI, data science and machine learning.
As of its Q2 earnings call, the company’s beaten analysts’ forecasts in four consecutive quarters. Most recently, it posted 9 cents EPS and $678.23 million in quarterly revenue.
So what exactly does the $65.78 billion market cap company do?
It provides four data services platforms that help clients manage, analyze and secure sensitive data. Those clients rely on Palantir for a range of services, including automated decision-making, billing, machine-learning … and weapons system deployment.
That last one is important. Palantir’s revenue from government sources exceeds its revenue from the private sector. The U.S. federal government is its largest client, contributing $1.222 billion in revenue in 2023 vs. $1.002 billion from private sources.
What Palantir Does for the Government
U.S. defense spending has now reached $877 billion annually, and as we discussed last year, there are numerous ways to profit from the war racket.
Palantir is one of those ways. Through its Gotham platform, it offers the U.S. Department of Defense (DoD) and the U.S. Intelligence Community “AI-driven combat superiority.”
According to its website:
“Gotham’s targeting offering supports soldiers with an AI-powered kill chain, seamlessly and responsibly integrating target identification and target effector pairing. Operators experience enhanced situational awareness and effectiveness as Gotham streamlines critical decision-making in the modern battlespace.”
The company offers data-centric integration and visualization models, helping forces centrally manage intelligence gathering and target identification.
Palantir’s advanced defense software solutions for the U.S. and Allied military forces is a growing demand as the landscape of modern warfare continues to shift.
Most recently, on Aug. 9, the company was awarded an $8 million contract by the DoD for commercial AI Mission Control software and integration services in support of the 7th Air Force and 607th Air Operations Command.
Space Partnerships
In case you haven’t heard, the International Space Station is nearing obsoletion. At the end of 2030, it will be deorbited and crash into Earth’s atmosphere in spectacular fashion.
Its replacement — like that of the Shuttle Program — will be a privatized endeavor.
On June 20, Palantir signed a strategic partnership with Starlab Space, the company building a commercial space station planned for low Earth orbit expected to launch no later than 2028.
As part of that deal, Palantir will be the exclusive provider of enterprise-wide software data management solutions for the space station.
One week later, on June 27, the company signed another strategic partnership with Voyager Space with the aim of leveraging AI intelligence to drive innovation in space technology for improved intelligence and space research for the defense community.
Outlook
As we emphasized earlier, this isn’t a conservative, dividend-focused investment opportunity. Palantir doesn’t provide yield. But it does provide potentially significant growth upside.
EPS is expected to grow steadily through the end of the decade, beginning with estimates for 9 cents/share for Q3 2024.
The company’s fundamentals are sound, with positive free cash flow (FCF) — an indicator of financial wellbeing — every year since the conclusion of fiscal 2020, when it posted -$308.84 million. Last year, Palantir finished with $697.07 in FCF, marking a 325.7% increase over 2020.
Revenues have grown similarly, from $1.09 billion in 2020 to $2.23 billion last year — an increase of 104.58%.
Meanwhile, the company’s total liabilities have fallen from $1.17 billion in 2020 to $961.46 million in 2023.
So far this year, the stock is up 84%, and when the entire market was selling off earlier in August, Palantir managed to gain 26% from Aug. 5 to Aug. 13.
S&P Global has projected the stock to reach an annual EPS of $1.17 in 2030 based on forecast revenue of $8.3 billion, which would result in an estimated share price of $64.
The stock is currently trading at $30.20, meaning the 2030 price target represents a potential 111.92% gain over the next five-plus years.