Hashmeel Suka & Chantal Marx
Palantir Technologies specialises in advanced software solutions used to analyse and engineer large-scale data sets, ultimately helping customers to understand and find insightful solutions to complex challenges. The company, which was founded in 2003, was initially focused on government work (particularly for intelligence and defence purposes), but has since expanded into the commercial space, serving clients across industries including Financial Services, Healthcare, and Manufacturing. Through its main platforms (Apollo, Artificial Intelligence, Foundry and Gotham) customers can leverage data and analytics for various purposes, such as enhancing the decision-making process, optimising the operational value chain, and supporting security-related objectives.
The company was taken public in September 2020 by co-founders Alex Karp (current CEO), Peter Thiel (Chairman of the Board) and Steve Cohen (Head of Product Development). Despite some scepticism surrounding the company's heavy reliance on government work (and hence its long-term profitability), Palantir's IPO was a significant milestone, highlighting rapidly growing demand for data-driven solutions from corporations all around the globe.
Operating structure
Palantir operates a unique business model, focusing on long-term partnerships with clients, whereby proprietary software solutions are deeply integrated into businesses, offering real-time insights through custom-built analytics solutions. The company's clients are aggregated across two segments:
Harnessing the power of AI
Palantir has been investing heavily in AI technology to enhance its existing product offering. With recent advancements in machine learning, large language models (LLMs), and generative-predictive text (GPT), the company has been able to significantly upgrade its platforms with capabilities for natural language processing as well as predictive analytics, allowing clients to engage more intuitively with data, improving the business intelligence process.
Defen(ce)ve
Palantir's capabilities in integrating AI and LLMs into defence and intelligence operations remains key to its defensive investment case. By way of the company's own example - its software can combine various models to help detect, identify, and execute required operations more safely and securely by integrating drone technology, terrain modelling, and signal jamming to provide options to defence decision makers in modern warfare scenarios.
The current geopolitical situation globally has seen increased expenditure in all facets of defence including Smart Defence, where Palantir continues to hold an edge.
On 18 December, the company announced the expansion of its contract with the US Army to support the "Army Data Platform" (ADP). The value of this agreement is approximately $401 million over four years, with a total available ceiling of $619 million. This is in line with its previous expansion signed in 2023 - but highlights the strategic importance of the company's capabilities from a defence perspective.
According to news reports, the company is also going to be part of a consortium that includes other AI players who will potentially bid on future defence contracts as a collective.
The commercial opportunity is still significant
The opportunity for AI and LLM adoption in the commercial context is still significant. While many US companies have begun leveraging the power of AI applications in its business processes, adoption is still in its infancy, meaning that the opportunity to leverage a strong market position is still substantial in the world's largest economy. There is, of course, still substantial scope for expansion outside of the US as well and the company already has a growing footprint in Europe.
While recent strong adoption has taken place in energy, healthcare, supply-chain management, and finance, Palantir's software can be valuable in almost every industry. Some examples highlighted by the company include the use of Palantir's Foundry providing Pacific Gas & Energy (a major California utility company) with a complete operating picture of the grid. Combining equipment health data, geospatial location and network topography, Foundry helps predict when the utility should conduct maintenance and switches parts of its electrical system on and off at critical junctures. Palantir has also built specialist applications for vehicle testing (initially rolled out at Ferrari's F1 team but now to broader production facilities), food aid, and has recently even launched a Football demo to help coaches with refining strategy in the moment.
Financials
Palantir has shown solid growth over the past three years with revenue increasing 27% on a compounded annual growth basis. This has been driven by rapidly growing demand for data analytics and AI-driven insights from its diverse customer base.
In FY23:.
Recent results for the company have also been quite impressive. For 3Q24, revenue climbed 30% y/y to $726 million, EBIT was up 69% y/y to $276 million, and adjusted EPS rose 43% y/y to $0.10. Looking ahead to the company's 4Q24 and FY24 results (due around 5 February 2025), revenue growth is expected to come in at ~28% and ~26% for the quarter and the full year, respectively. This is set to filter into adjusted EPS growth of ~39% and 52%, respectively.
Investment case summary
Risks
Consensus outlook and valuation
