I'm Buying Palantir Stock (PLTR) After Earnings (Here’s Why)

Summary

Palantir's latest earnings call revealed record revenues of $726 million, with impressive growth in both commercial and government sectors. Key metrics like a 118% net dollar retention rate and strong customer growth highlight Palantir's expanding reach. The company is well-positioned in the competitive AI market, with a Rule of 40 score of 68, one of the highest in the software industry. Despite a 30% stock surge, the AI era is still in its early stages, making Palantir a unique investment. The video concludes with a dollar-cost-averaging strategy and highlights Palantir’s potential to dominate the AI software landscape in the long term.

Takeaways

• 😀 Palantir reported record revenues of $726 million for the quarter, showing 7% quarter-over-quarter growth and 30% year-over-year growth.
• 😀 U.S. commercial revenue grew by 54% year-over-year, with a 133% increase from the previous quarter, driven by strong customer expansion.
• 😀 Palantir's U.S. commercial customer count rose by 77% year-over-year, showing strong demand for its AI software solutions.
• 😀 The company’s net dollar retention rate of 118% indicates that existing customers are spending 18% more on Palantir’s services year-over-year.
• 😀 Palantir’s U.S. government revenue grew by 40%, showing strong performance across both commercial and government sectors.
• 😀 Operating margins for Palantir reached 16% (GAP) and 38% (adjusted), contributing to its highest-ever Rule of 40 score of 68.
• 😀 The Rule of 40 metric combines revenue growth and operating margins, and Palantir’s score of 68 places it among the top software companies.
• 😀 Palantir’s impressive earnings and growth metrics suggest it is well-positioned to capitalize on the expanding AI market, with significant long-term potential.
• 😀 Despite a 30% surge in stock price, Palantir’s stock is considered to be trading at fair value, indicating no immediate overvaluation.
• 😀 Palantir’s CEO Alex Karp believes that the winners in the AI industry will be powered by Palantir, positioning the company as a dominant force in AI software.
• 😀 The AI market is still in its early stages, similar to the mobile internet revolution, and Palantir’s software is seen as a key enabler of AI adoption across industries.

Q & A

What are the most important takeaways from Palantir's latest earnings call?

Palantir reported record revenues of $726 million for the quarter, showing solid growth both year-over-year and quarter-over-quarter. Notably, the company saw a massive 77% year-over-year increase in its U.S. commercial customer base and a 118% net dollar retention rate. Additionally, Palantir's Rule of 40 score of 68 highlights strong growth and operating margins, signaling their competitive edge in the AI market.

What is net dollar retention, and why is it important for Palantir's growth?

Net dollar retention (NDR) measures how much existing customers are spending compared to the previous year. A rate of 118% means that existing customers are spending 18% more with Palantir, which demonstrates the increasing value of Palantir’s solutions to its clients and reflects strong customer loyalty. This metric is crucial for understanding the company’s ability to generate growth from its existing customer base.

What does the 'Rule of 40' score mean, and how does it reflect Palantir's financial health?

The Rule of 40 is a metric used to evaluate software companies, combining revenue growth and operating margins. A score of 40 or higher indicates that a company is performing well. Palantir's score of 68, derived from 30% revenue growth and 38% operating margins, places the company in a very strong position, outperforming many other software companies and showing both high growth and profitability.

How does Palantir compare to other software companies based on the Rule of 40?

Palantir's Rule of 40 score of 68 is exceptional compared to other publicly traded software companies. For instance, Splunk has a score of 53, Adobe has a score of 51, and Salesforce has a score of 38. This makes Palantir one of the top performers in terms of both revenue growth and operating margins.

What is the significance of Palantir's U.S. commercial growth?

Palantir's U.S. commercial revenue grew by 54% year-over-year, driven by a 77% increase in the customer count. This indicates that Palantir is successfully penetrating the largest and most lucrative market for its software, expanding its reach across various industries like automotive, healthcare, and logistics. The growth in commercial customers is a key driver for Palantir's long-term success.

Why is Palantir's growth in the U.S. government sector important?

Palantir's U.S. government revenue grew by 40%, signaling that the company is expanding its footprint in government contracts, which are often large, long-term, and stable sources of income. This growth shows that Palantir is not solely reliant on commercial sectors but has a balanced and diversified revenue stream.

What does the DCF (Discounted Cash Flow) model indicate about Palantir's stock value?

According to a DCF model, Palantir's stock is currently trading at fair value. This suggests that the stock is neither undervalued nor overvalued at its present price. While it is not a bargain, the company’s long-term prospects remain strong due to its market position in AI software.

What role does Palantir play in the broader AI revolution?

Palantir is positioning itself as a key player in the AI revolution, particularly in AI-driven software. As a Pure Play AI software company, Palantir stands out from competitors by focusing solely on AI platforms, offering an advantage as AI adoption expands across industries. The company’s growth is tied to the ongoing development of AI infrastructure and technology.

Is it too late to invest in Palantir at its current stock price?

While Palantir's stock has risen significantly, reaching an all-time high, it’s not necessarily too late to invest. The stock is fairly valued according to DCF models, and the company’s long-term growth prospects in the AI sector remain strong. A good strategy would be to dollar-cost average into the stock, gradually increasing the position over time, especially during dips.

How does Palantir compare to other companies in the AI ecosystem, like Microsoft or Nvidia?

Palantir is a unique player in the AI ecosystem, as it is one of the few companies focused solely on AI software, whereas companies like Microsoft and Nvidia have broader portfolios. Microsoft leads with its enterprise AI integrations, and Nvidia dominates AI hardware. Palantir, however, is in a strong position within AI software, offering specialized solutions across various sectors. While Microsoft and Nvidia are ahead in their respective domains, Palantir’s software-centric approach could see substantial growth as the AI sector matures.