Will Palantir 3x and Make Millionaires?
Palantir has been making enormous strides in the commercial sector and that has many abuzz about how high the share price could really go. Would a $333,000 investment in Palantir create a millionaire over the next 5 years?
We take a look at the massive opportunity ahead for Palantir and whether the hype is warranted.
Key Points
- Palantir’s expansion into commercial sectors mirrors AWS’s early success, showing strong long-term growth potential.
- The new Artificial Intelligence Platform (AIP) has driven a 40% revenue increase, showcasing Palantir’s effective market capture.
- Despite high onboarding costs, Palantir’s vast market potential could significantly grow its customer base and revenue, potentially offering a 3x return for investors over five years.
Why Palantir Gets So Much Hype
Palantir has a rich history laden with intrigue. For years it was unclear precisely what this software actually did. The idea of artificial intelligence wasn’t particularly well-formed in the public’s minds so when Palantir started to win government contracts on the back of AI capabilities it led to a lot of speculation about what it really did. Adding to the intrigue was the fact that one of Palantir’s founders was Peter Thiel, an early investor in Facebook and part of the early PayPal mafia with Elon Musk.
As time went on, the mystery faded and concerns then rose that Palantir was overly exposed to one sector, government. Still, to this day, Palantir derives about half of its revenue from government but it’s the other half that has been getting investors so excited.
The growth in the commercial and corporate sectors has been nothing short of phenomenal. In some respects, it reminds us of the day we spotted about 15 years ago that Amazon’s bottom line was improving and the needle that caused them to move was fast growth in AWS. For Palantir, the needle-mover is commercial growth and the pace at which it’s rising is similarly cloaked by the fairly stable government contracts.
The power of Palantir is its ability to be adaptable to so many needs, whether in healthcare supporting staffing operations or in the middle east locating a key infrastructure node upon which a foreign actor is heavily dependent.
More recently, Palantir’s Artificial Intelligence Platform, its latest product, has been a massive hit and succeeded in hitting the key product-market fit milestone with revenues popping by 40% over the past year. The looming question is whether the fast growth will translate to making millionaires?
Palantir Still Has a Huge Runway
A big knock on Palantir is that winning contracts has been uphill sledding. It appears that it’s been hard for the sales force to teach companies precisely how to use and onboard Palantir’s offerings, which is one reason it has fewer than 600 customers, leaving a massive market opportunity ahead for the firm.
Yet Palantir’s market isn’t every business in America or, for that matter, most small businesses that comprise the majority of American businesses overall. That’s because signing up to Palantir means paying a cool half million or more, if average client bills are indicative.
Absent a new offering, akin to when Tesla its Model 3 to cater to the lower end of the market, Palantir will be stuck targeting high-end clients for the foreseeable future, and that means traction, measured by customer count, is likely to be similarly slow-paced.
With that said, it would be surprising if, given its current deep pockets and history of success, Palantir doesn’t accelerate growth from 500 or so customers to 2,000 in a faster time than it took to acquire those initial customers. And if it does so that would translate to almost 4x revenue, closing in on $10 billion.
Given the company’s high margins, net income forecasts of 50% annually for the next 5 years are reasonable and mean the sky high PE ratio of 213 will likely come crashing down to much more reasonable levels.
Yet if excitement continues and the opportunity remains extended at that time, which we expect, Palantir will likely still trade at a premium and certainly has the potential to 3x investors money over a 5 year time horizon.
