Friday, May 24, 2024

Palantir Stock Grapples With Disparate U.S. Commercial, International AI Momentum

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




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Palantir stock fell on its Q1 earnings report as analysts focused on U.S. commercial market growth amid weakness in the software maker’s international business.

“Palantir posted upbeat Q1 results that were again led by sustained momentum in its U.S. commercial business, where it is one of the earlier software companies to meaningfully monetize generative AI,” said Deutsche Bank analyst Brad Zelnick in a report. “The ability to drive stronger acceleration in 2024 is being constrained by Palantir’s government and international commercial businesses that aren’t yet seeing similar AI tailwinds as U.S. commercial.”

Palantir Stock Valuation Amid AI Buzz

As of May 13, PLTR stock had advanced 20% in 2024. Also, technical rating have weakened. PLTR stock trades below its 50-day moving average.

Meanwhile, shares have retreated from a high of 27.50 set on March 7. Further, Palantir stock has dropped off the IBD 50 roster of growth companies.

On the news front, there’s plenty for investors to mull. Oracle (ORCL) and Palantir announced a cloud computing alliance.

In addition, Palantir has won a new, $178 million U.S. Army contract for project TITAN, a battlefield system using artificial intelligence.

At a customer conference on March 7, Palantir showcased its Artificial Intelligence Platform,” rolled out in early 2023. The AI platform has been gaining traction with commercial customers, Palantir said at the conference. It cited new customers, including General Mills (GIS), CBS and Aramark (ARMK).

“The event featured over 60 customers showcasing their work in AIP,” said Jefferies analyst Brent Thill in a report. Amid the big run-up in PLTR stock, Thill added: “Biggest concern remains valuation at 18 times (estimated) calendar 2025 revenue, making it the most expensive name in our coverage.”

Meanwhile, here’s a look at Palantir’s international business, including how AI is doing in Europe.

Palantir stock jumped after it reported fourth-quarter earnings that met estimates while revenue topped Wall Street targets.

PLTR Stock: Will AI Be A Growth Driver?

Also, Palantir stock jumped 167% in 2023. The Nasdaq composite climbed 43% while the S&P 500 rose 24%.

Further, Palantir is among AI stocks to watch.

PLTR stock bulls point to artificial intelligence software as a growth driver. 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 software maker has expanded into health care, energy and manufacturing.

Palantir has not disclosed pricing for AI products. Some analysts say Palantir needs to show progress developing new revenue streams from generative AI.

PLTR Stock: Governance Structure

In 2023, Palantir announced a $1 billion buyback for PLTR stock. But, it had not bought any shares through Dec. 31.

In addition, PLTR stock trades well below the software maker’s all-time intraday high of 45 set in late January 2021.

Meanwhile, Palantir’s governance structure gives Karp and co-founder Peter Thiel long-term control of the company through super-voting rights.

The company name is derived from the palantiri, which are crystal ball-like “seeing stones” from the “Lord of the Rings” book and film series. Palantir means “one that sees from afar.”

In addition, Palantir engineers often customize software for the needs of customers. That extends the time needed to ramp up “digital transformation” projects. So after Palantir wins a contract it may take awhile to generate revenue.

The Denver-based company offers three platforms. One is Palantir Gotham, used primarily by government agencies. There’s Palantir Metropolis for banks, financial services firms and hedge funds. And Palantir Foundry is used by corporate clients.

Government Biggest Market

Palantir gets nearly 60% of its revenue from government agencies. Decelerating revenue growth is an issue. In 2022, revenue growth slowed to 24% from 40% in 2021 and 47% in 2020. In 2023, revenue grew 17% year-over-year to $2.23 billion.

For the quarter ended March 31, Palantir earnings using generally accepted accounting principles, or GAAP, were 8 cents a share, up 60% from a year earlier. Revenue rose 21% to $634 million.

Analysts had predicted Palantir earnings of 8 cents a share on revenue of $615 million.

Denver-based Palantir said government revenue rose 16% to $335 million, vs. estimates of $322 million in sales. In addition, commercial revenue rose 27% to $299 million, topping estimates of $292 million.

U.S. commercial revenue rose 40% compared with 70% in the fourth quarter of 2023. In addition, Palantir said it closed 136 U.S. commercial deals in the quarter, up from 70 in Q1 2023.

Meanwhile, Palantir reported $24 million of revenue related to investments in special purpose acquisition companies, or SPACs.

Further, Palantir said it now expects “revenue in our U.S. commercial business to grow 45% or more in 2024 compared with 2023.”

For the current quarter ending in June, Palantir said it expects revenue of $651 million at the midpoint of guidance. Analysts had predicted sales of $643 million.

Palantir tweaked its 2024 revenue forecast slightly higher to a range of $2.68 billion to $2.69 billion.

Palantir Forges Partnerships

In November 2022 Palantir acquired full ownership of a joint venture in Japan that sells the company’s software. Japanese insurance firm Sompo Holdings is the biggest customer.

Then in 2023, Palantir began consolidating revenue from the joint venture in its earnings reports.

Further, Palantir recently expanded its cloud computing partnership with Microsoft (MSFT) that targets government agencies.

To speed up corporate adoption of artificial intelligence software, Palantir and IBM formed a global partnership. Under the deal, Palantir also made its Foundry software available to IBM’s cloud computing customers. The Foundry platform is a centralized data operating system that lets users manage, filter and visualize large data sets.

Palantir Stock Technical Analysis

Palantir’s technical ratings have weakened. Its Relative Strength Rating stands at 86 out of a best-possible 99.

Also, Palantir stock holds a Composite Rating of 92 out of a best-possible 99, according to IBD Stock Check-up.

IBD’s Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.

PLTR stock holds an Accumulation/Distribution Rating of C. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. A+ signifies heavy institutional buying; E means heavy selling. Think of a C grade as neutral.

Meanwhile, Palantir stock dropped below its 50-day moving average after reporting Q1 earnings. As of May 13, Palantir stock is not actionable.

Further, check out IBD Stock Lists and other IBD content to find dozens more of the best stocks to buy or watch.

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.

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