Palantir: A Controversial Stock with Bulls and Bears Battling for Control

Palantir Technologies is a software company that has gained significant attention in the market. However, investors often find it challenging to navigate the noise surrounding the company and understand its core value.

The Bullish Spin: Palantir’s Rising Potential

Promoting itself as a software juggernaut, Palantir harnesses the power of data analysis to improve operations, facilitate decision-making, and uncover insights. While its roots are deeply intertwined with the U.S. government, with government contracts accounting for over half of its business, Palantir sees great potential in the commercial sector. It experienced a 50% growth in U.S. commercial customers in the first quarter and an additional 35% in the second. With just 161 U.S. commercial customers, the company’s growth story is likely just beginning. In fact, Palantir’s recent release of its Artificial Intelligence Platform (AIP) has generated unprecedented interest, attracting customers from 30 different industries, highlighting the vast market potential.

Palantir boasts $2 billion in trailing-12-month revenue, profitability according to generally accepted accounting principles, and nearly $400 million in free cash flow. Furthermore, armed with over $3 billion in cash and no debt, the company has the financial means to explore new ventures.

The Bearish Spin: Concerns for Shareholders

Palantir’s trajectory seems promising, but that doesn’t automatically make it an excellent investment. One potential issue lies in the complexity of its software, making it difficult for most investors to fully comprehend its business model and compare it to competitors. Additionally, Palantir’s customer base remains largely undisclosed since customers predominantly utilize the software for internal purposes.

Furthermore, since going public, Palantir has issued a substantial amount of stock-based compensation. This practice improves cash flow but may dilute the value of existing shares over time. Despite revenue growth of over 126%, the increase in outstanding shares by 35% resulted in a mere 13% growth in revenue per share.

Moreover, Palantir’s revenue growth rate has progressively declined, dropping from 52% year-over-year in Q3 2022 to 13% in Q2 2023. Although management projects a 16% year-over-year revenue growth for Q3, such a significant decline warrants careful monitoring.

Both the bullish and bearish perspectives have valid arguments, contributing to the polarization surrounding Palantir as a stock. Only time will answer the questions posed by each side and reveal its true potential as an investment.

Currently, Palantir trades at a forward price-to-earnings ratio of 69, and analysts anticipate an average 56% annual growth in earnings per share over the next three to five years.