$Palantir Technologies Inc.(PLTR)$
Key Points
- Palantir Technologies was originally designed to help government spy agencies analyze data signals.
- Turns out the business world has equal need for massive number-crunching capabilities.
- Data analytics is a very crowded space, though.
Palantir Technologies(NYSE:PLTR)went public in September 2020 at $10 a share, and here we are 16 months later and the data analytics specialist is trading at $13 a share, a 30% gain. Not a bad return for a year and half's investment.
Yet most of Palantir's gains came from being caught up in the meme-stock trading frenzy last year that saw its shares reach a high of $45 a share, only to be mostly on a long, slow roll downhill ever since. Thus its gains are more a residual effect of having been bid up so high than of proving its mettle in the market.
With much of Palantir's business coming from government contracts while trying to break further into the crowded private sector market, let's see if the data analytics firm has what it takes to make a millionaire out of an investor today.
Government contracts set the ground for growth
Founded by venture capitalist Peter Thiel in 2004, Palantir was at one time a shadowy, secretive organization that counted the FBI, CIA, NSA, and other government agencies as customers (and still does), and through the first three quarters of the fiscal 2021, theystill represent 59% of its $1.1 billionin total revenue.
Yet that means more than 40% of its sales come from commercial interests, and the number of private-sector customers increased 46% in the third quarter, leading to a year-over-year doubling of commercial revenue.
It's understandable why the government has signed onto Palantir'sartificial intelligenceandmachine learningtechnology. It needs to process and analyze massive amounts of data to perform tasks like coordinating millions of troops around the world and reading signals from a global flow of data. Yet today's businesses have equal need for such capabilities.
It's estimated around 44 zettabytes of data is produced today with 2.5 quintillion bytes of data produced daily, and this is expected to grow to 463 exabytes by the middle of the decade. But data by itself is useless unless it can be turned into useful information. That's where Palantir comes in, where its Gotham platform sifts through and organizes large amounts of data into usable form.
Getting its nose under the commercial tent
Gotham was first introduced to its government customers in 2008 to identify patterns and signals contained deep within its datasets, but Palantir soon realized a similar capability was needed by business,which led it to create Foundry.
Started as a solution for individual companies, Foundry is now integrated into numerous industries themselves. For example, Palantir notes an Airbus A350 consists of 5 million parts assembled by hundreds of teams in four countries, and the need for coordinating that data is immense. Yet the platform is also widely used throughout aviation as it has integrated data from more than 100 airlines and 9,000 aircraft worldwide.
Today, Foundry is deeply embedded in the energy, transportation, financial services, and healthcare sectors. The private sector is where the future of Palantir's growth lies, yet Big Data is a crowded field.
IBMwas anearly, influential frontrunnerin the field, but the company has felt the sharp elbows of rivals and upstarts. FromBooz Allen Hamilton, CACI and SnowflaketoAmazon's Web Services,Boeingsubsidiary Narus, and Splunk, there are numerous players crunching big data numbers for both the government and the private sector.
While Palantir is seeing strong growth in the private sector, others are growing much faster still. Where it reported over 200 commercial customers at the end of the third quarter, Snowflake has over 5,400 and saw revenue jump 110% year over year, while Splunk has 635 customers and enjoyed 75% revenue growth.
Certainly, a growing industry affords the possibility of a lot of players, and the old investing saying of "a rising tide lifts all boats" could work here. Yet it also means Palantir has its work cut out for it.
Wall Street forecasts the data analytics specialist will triple revenue by 2025, growing to $3.3 billion, generating some $1.3 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA). Analysts have also set a one-year consensus price target on the stock of $23 a share, or some 78% above where it currently trades.
Feeling like a million bucks?
So will Palantir Technologies help you become a millionaire? Likely if you sink enough money into it it will, but putting $1,000 into the stock and expecting it to turn into $1 million might be a difficult task to achieve, even holding onto it for decades.
However, that doesn't mean Palantir isn't a stock to buy. For an investor with an appropriate commitment toward a long-term,buy-and-hold strategy, Palantir could be an effective component of a well-diversified portfolio of two dozen stocks or more.
Together they can help you become a millionaire, but I'm doubtful by itself Palantir can achieve that goal.
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