Palantir Stock Is Crushing Its Peers In AI Revenue
$Palantir Technologies Inc.(PLTR)$
Oct. 22, 2024 5:47 AM
Summary
• Palantir has been one of the top-performing AI software stocks this year with a 156% YTD return, thanks to accelerating revenue growth and strong business momentum from its AIP.
• Fundamentally, what’s most critical for shares is maintaining a revenue growth rate above 20% for the foreseeable future.
• Government revenue growth was 23% YoY, up 7 percentage points from 16% YoY in Q1.
• The one caveat is PLTR’s valuation, at 34x FY24 revenue and 29x FY25 revenue, is increasingly challenging to sustain.
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Palantir Stock Is Crushing Its Peers In AI Revenue
Oct. 22, 2024 5:47 AM ETPalantir Technologies Inc. (PLTR) StockMDB, CRM, SNOW10 Comments
Beth Kindig
Investing Group Leader
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Summary
• Palantir has been one of the top-performing AI software stocks this year with a 156% YTD return, thanks to accelerating revenue growth and strong business momentum from its AIP.
• Fundamentally, what’s most critical for shares is maintaining a revenue growth rate above 20% for the foreseeable future.
• Government revenue growth was 23% YoY, up 7 percentage points from 16% YoY in Q1.
• The one caveat is PLTR’s valuation, at 34x FY24 revenue and 29x FY25 revenue, is increasingly challenging to sustain.
• Looking for more investing ideas like this one? Get them exclusively at Tech Insider Network. Learn More »
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AIP's strong momentum has helped drive quarterly revenue growth to 27.2% YoY in Q2 2024, up from 12.7% in Q2 2023. (Tech Insider Network)
Palantir reported 27.2% YoY revenue growth in Q2, aided by strength in US commercial stemming from AIP as well as government revenue accelerating significantly. Palantir's YoY revenue growth bottomed in Q2 2023 at 12.7%, the same quarter as AIP's release, with revenue growth now 15 points higher. Despite guiding for a slight 2 percentage point deceleration in Q3 to 25.2% YoY growth, Palantir would only need to beat its guide by 1.5% to keep this revenue acceleration intact.
Fundamentally, what's most critical for shares is maintaining a revenue growth rate above 20% for the foreseeable future - analysts currently estimate fiscal Q2 2025 to be the one quarter of the next eight with revenue growth just below that threshold. Given AIP's strength just one year following its launch, with clear inflections in customer and revenue growth, it will be the telling sign of Palantir's AI status if it can maintain these revenue growth rates as it scales.
Palantir's AIP Separates It From The SaaS Universe
Palantir's standout performance so far in 2024 against SaaS peers can be attributed to the success of AIP, which, at its core, is a comprehensive AI platform that lets enterprises lever Palantir's AI and machine learning tools and harness the power of the latest large language models (LLMs) within Foundry and Gotham.
Gotham was the company's first product and is built for government operatives in the defense and intelligence sectors. The platform enables users to identify patterns hidden deep within datasets using semantic, temporal, geospatial and full-text analysis, with mixed reality capabilities to allow operations to be run in a virtual environment as well. Graph allows data objects to be seen as nodes and edges, while Map tracks geolocated objects, runs searches and displays key data.
Foundry was built for the commercial sector, and is centered around the three-layer Ontology Core, integrating semantic, kinetic, and dynamic layers for real-time data analytics and AI-powered decision-making capabilities:
• The Semantic layer brings volumes of data into one place, and lets users generate detailed object properties
• The Kinetic layer brings operations and business behaviors into a real-time graph linked back to the Semantic layer, creating the basis for AI-driven analytics, real-time monitoring, identification of inefficiencies, and ability to optimize workflows
• The Dynamic layer connects models to objects and actions, reasoning across both the Semantic and Kinetic layers for AI-powered automation and AI-driven decision-making, alongside multistep simulations with AI predictive analytics to explore possibilities of changing actions or events
AIP combines with Foundry's data operations suite and Apollo's autonomous software deployment capabilities as part of Palantir's 'AI Mesh', providing enterprise and government customers with a full suite of AI products from the web to mobile to the edge. With the Ontology, linking data and logic into an AI-accessible environment, Palantir brings generative AI directly to an enterprise's operations, delivering real-time AI-driven operational decision-making abilities.
Palantir describes Gotham and Foundry as the "ability to construct a model of the real world from countless data points." AIP links this all together, and this is what separates Palantir as a standout in the SaaS space - outside of the cloud hyperscalers, Palantir is one of the rare few that sees AI drive both real returns for its business and real value for its customers due to AIP.
What further sets AIP apart is its scalability, interoperability and versatility. With AI Mesh, organizations can integrate AI across different operations and applications, while its design facilitates interoperability with existing enterprise software and systems. AIP is also extremely versatile, having been successfully and seamlessly integrated into enterprises spanning a wide range of industries from tech to healthcare to aerospace, while still driving value to customers.
The uniqueness of Palantir's AIP and value that it can quickly provide has driven growth for the company. CEO Alex Karp said in Q2 that:
Growth across the commercial and government markets has been driven by an unrelenting wave of demand from customers for artificial intelligence systems that go beyond the merely performative and academic."
Essentially, there is constant strong demand for an applicable, scalable, versatile AI platform that can drive real-time results with an instant value-add for an organization. Chief Revenue Officer Ryan Taylor added that Q2's:
Exceptional results are a reflection of a market that is quickly awakening to a reality that our customers have already known, we stand alone in our ability to deliver enterprise AI production impact at scale."
Government Is Palantir's Secret Sauce
While Palantir is undoubtedly seeing strong business momentum in the commercial sector, the government sector remains Palantir's bread and butter, being that the government sector has funded the company and allowed it to aggressively invest in AIP while expanding margins, with a recent growth acceleration
In Q2, US government revenue accelerated to 24% YoY growth, up 12 percentage points from 12% YoY growth in Q1. Overall, government revenue growth was 23% YoY, up 7 percentage points from 16% YoY in Q1. Management noted that Palantir was:
Selected for several notable awards in Q2, which led to the strongest US government bookings quarter since 2022, reflecting the growing demand for our government software offerings."
This included a production contract from the DoD, Chief Digital and Artificial Intelligence Office (CDAO) for an AI-enabled operating system for the DoD, with an initial $153 million order and additional awards for up to $480 million over a 5-year period.
The acceleration in the government segment aided overall revenue growth in the quarter, as the government continues to remain Palantir's primary revenue source, accounting for nearly 55% of total revenue. This is why the government segment is vital for Palantir, and is its 'secret sauce' - these long-term, high-value government contracts provide consistent and recurring revenue and financial stability, allowing the company to venture and invest to scale AIP while expanding margins and increasing its profitability.
Conclusion
Palantir has been on a tear this year, and is outperforming major cloud competitors, thanks to the strength and uniqueness of its AIP offering. Palantir has the best of both worlds in government contracts and AI exposure, as well as accelerating enterprise AI adoption and strong customer and revenue growth.
The one caveat is Palantir's valuation, at 34x FY24 revenue and 29x FY25 revenue, is increasingly challenging to sustain. In the past, the low 20x revenue multiple range has tended to be the level that even the industry's leading SaaS names have struggled to break past over the last few years.
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