To The Moon

$Palantir Technologies Inc.(PLTR)$ will announce its Q3 financial results on 04 Nov 2024 after market close. We are seeing analysts reported to expect a 40% drop in PLTR stock price after its earnings.

There are some points that might sound reasonable, but I think we need to look at how companies who are in the AI business (either hardware or software) who have reported their quarterly earnings so far, none of them who continued to sell and have increased number of customers to their business, are seeing drop of more than 20$ in their share price.

So I think we might want to look at both fundamentals of Palantir and technicals, also include how the AI cycle are moving for the different industries, government and also consumer.

Palantir earnings per share is expected to come in at $0.09 on revenue of $703.36 million.

Palantir Unique Position In AI Landscape vs Profitability and Growth

Palantir has positioned itself uniquely in the AI landscape, leveraging its enterprise platforms Gotham, Foundry, Apollo, and the new AIP to deploy production-ready AI solutions for government and commercial clients. Unlike many competitors focused on prototype development, Palantir specializes in real-world AI integration, tackling complex data challenges for mission-critical applications.

There is plenty for bulls and bears to hash out over Palantir Technologies (PLTR). Bulls point to improved profitability for PLTR stock. Bears focus on whether revenue growth will re-accelerate for Palantir stock. Then, there is buzz over artificial intelligence stocks to consider for the maker of data analytics software.

What Palantir Guidance For Q3 Tells Us

Palantir has expect for Q3 2024, revenue of between $697 - $701 million and adjusted income from operations of between $233 - $237 million.

For the full year 2024, Palantir actually is raising their revenue guidance to between $2.742 - $2.750 billion.

What would be in focus is Palantir US commercial revenue which Palantir guidance have been raised to in excess of $672 million, representing a growth rate of at least 47%. Their adjusted income from operations guidance to between $966 - $974 million.

Palantir also expect the adjusted free cash flow of between $800 million - $1 billion and continue to expect GAAP operating income and net income in each quarter of this year.

PLTR's free cash flow for Q2 2024 was $141.31M. For the 2024 fiscal year, PLTR's free cash flow was decreased by $475.73M and operating cash flow was $144.19M

Higher Commercial Revenue Expected. Is It Good Enough?

In 2023, government Revenue segment expected to be the single-biggest revenue driver with $1.2 Bil in revenues (55% of Total Revenues) over FY2023.

For the third quarter, government revenue is expected to climb nearly 23% to $378 million. Commercial revenue will grow 31% to $328.5 million, analysts estimate. Analysts will be looking for management commentary of artificial intelligence-related projects moving from trials to production.

In the second quarter, US commercial revenue grew 55% year-over-year and 6% quarter-over-quarter to $159 million. US commercial customer count grew 83% year-over-year and 13% quarter-over-quarter to 295 customers.

US commercial remaining deal value (“RDV”) grew 103% year-over-year and 11% quarter-over-quarter. US government revenue grew 24% year-over-year and 8% quarter-over-quarter to $278 million

Commercial revenue grew 33% year-over-year and 3% quarter-over-quarter to $307 million. Government revenue grew 23% year-over-year and 11% quarter-over-quarter to $371 million.

Palantir closed 27 deals over $10 million. Customer count grew 41% year-over-year and 7% quarter-over-quarter.

So if Palantir upcoming earnings can come close to these number, then we might see investors confidence increased and helped to push the stock price higher.

Palantir Out-Performed Other Software Companies

PLTR stock has out-performed other software companies. The iShares Expanded Tech-Software Sector ETF (IGV), an industry index that includes Microsoft (MSFT) and many big-cap software companies, has gained 15% in 2024.

And we have seen $Microsoft(MSFT)$ report their quarterly earnings, and concerns have been on the return of investment on AI, as MSFT face high expectations.

Given the current strength in Palantir’s business, there’s a chance the company may exceed expectations in Q3, potentially even leading management to revise its full-year revenue guidance. In fact, during Q2, Palantir had already raised its 2024 revenue outlook to between $2.742 billion and $2.750 billion.

Palantir Stock Joins S&P 500 In The Third Quarter

Meanwhile, Palantir joined the S&P 500 index on 23 Sep. The inclusion enables mutual funs and institutional investors to buy PLTR stock.

Palantir has already mined the AI opportunity with government customers for intelligence gathering, counterterrorism and military purposes. Now Palantir aims to use generative AI to spur growth in the commercial market.

The company continues to make progress with its "Artificial Intelligence Platform," initially rolled out in early 2023. Palantir hosted its fifth AIP event in September. At AIPCon 5, clients such as the National Geospatial-Intelligence Agency, Aramark, and Mount Sinai demonstrated Palantir AI technologies in better supply chain management, operational efficiencies and health patient care.

What is the Fair Price of PLTR when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

PLTR is currently trading below the estimate fair value of $51.31. Though PLTR is trading below the fair value, the number is not significant.

PLTR Might Experience A Top Pullback and Predicted Move of 14%

The options market overestimated PLTR stocks earnings move 33% of the time in the last 12 quarters. The predicted move after earnings announcement was ±14.1% on average vs an average of the actual earnings moves of 16.3% (in absolute terms).

This shows that PLTR tended to be more volatile than the options market predicted for the earnings stock price reaction.

And on the technical side, we might be seeing a top pullback from Palantir after we have seen some upward trend.

Volatility Spread of 25-Delta Put IV minus 25-Delta Call IV

The implied volatility skew shows the market's bias for pricing in volatility risk to the option premium of downside puts and upside calls.

The implied volatility for downside puts is increasing relative to upside calls, this suggests the market is pricing in a larger fear to a downside move.

The current skew indicator is giving a slightly bearish signal.

Technical Analysis - MACD and Multi-timeframe

We are seeing that PLTR have been trading below the short-term and long-term MA, and though MACD is showing a potential crossover, but it could go either way, if PLTR earnings could beat estimates and show commercial business having better-than-expected growth, then we might have a chance that PLTR could see a bullish MACD crossover.

The MTF is suggesting a possible upward trend though it is not a strong one, I would think we need to monitor the price action on Monday (04 Nov) before its earnings.

Summary

Though analyst are expecting PLTR to beat the earnings per share, I think what is important is the revenue contributor, particularly the commercial business.

The commercial business growth should be substantial given the number of contracts tha Palantir have signed in third quarter, and whether these will translate into growth, and also the outlook guidance for 2025 would be something to look out, as organization are into their budget planning for the new financial years.

These are factors that I would be looking out and also how PLTR stock price would be trading in terms of price action.

I am holding my position in PLTR as I believe their business and software would be for the long term.

Appreciate if you could share your thoughts in the comment section whether you think PLTR would beat earnings estimates in terms of revenue and EPS.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.