Is Palantir Stock a Solid Long Term Investment?

Palantir

Nowadays, there is a significant amount of data worldwide, and it is created within record time. Palantir Technologies, a data science company, went public in late 2020, and it excellently timed society’s efforts to use all the data that is created daily. Initially, Palantir Technologies relied on government contracts to gain revenue, but this is changing. When the Denver-based firm went public, investors wondered if it could expand its business beyond government work. The firm unveiled a lot of progress in several areas in the second quarter. This is a sign that the company is a solid long-term investment. Here are some reasons why this is the case:

Commercial growth is rising

After Palantir went public, it was generating seventy-six percent of its revenue from government customers. Since the company relied heavily on federal funds, it was a major risk for investors. The company’s quarter two earnings in 2021 went some log way in addressing concerns that the firm over-relied on government contracts. Its commercial customer count grew thirty-two percent in the second quarter from the previous three months. This indicates that more people are interested in investing in the company. According to Fool.com, Plantir has increased its commercial customer count by sixty-one percent since December 31st, 2020. The firm’s revenue from commercial customers based in the U.S.A grew ninety percent year over year in quarter two. The continuous addition of new customers is a sign that commercial revenue will continue growing faster as customers move into the monetization stage of the company’s sales process.

Its growing market

Palantir is becoming a premier company in the software industry. It has signed deals with reputed companies in Silicon Valley, including creating recent contracts with Amazon’s AWS and IBM. Beginning from June, Palantir also announced that it was increasing its work with Fujitsu, a Japanese-based firm. It has signed a 1-year eight million contract with Fujitsu. Fujistu will become the initial distributor of the Foundry platform modules of Palantir in Japan. Yet, the contracts make a small part of the market share potential. This means that there is still enough room for Palantir’s growth.

Impressive financials

Palantir’s recent earning reports have confirmed its fast growth. In quarter two, its revenue grew forty-nine percent to $376 million year over year. Palantir also posted $50 million in adjusted free cash flow, which represented a 13 percent margin. Due to the inspiring results, Wall street has predicted that Palantir will be profitable in the coming years.

Winning government clients

In the opinion of Mywallst.com, Palantir is a top provider of data analytics to some large government agencies. It is loyal to the United States government, and this has enabled it to win many deals. For the second quarter, the firm stated that revenue from the United States government had grown by 90 percent year over year. The company has signed several government contracts, and professionals estimate that demand from governmental agencies will increase in the future. The technology firm is assisting the UK government with the Brexit border by working with the NHS. The British National Health Service and the US Department of Health also contracted Palantir to help in controlling the flow of COVID-19 related data. Although some investors have criticized Palantir for working with government agencies, smart investors have noted that these clients provide the firm with stable income, which they can rely on.

Rapidly-improving financials

Typically, Palantir brings customers onboard its platform at a loss to prove to them that it is an essential component of its customer’s operations. As Gotham/Foundry, machine learning, and artificial intelligence learning models increase customer value, Palantir’s revenue and its relationship with them become increasingly profitable. This is evident in the company’s financials. The income from its top twenty customers grew thirty-six percent year over year in quarter 2 to $39 million each. The large customers are now assisting the company in becoming more profitable.

An expanding pipeline

Palantir has a backlog of contracts, and they are a vital indicator of how the company is doing. It signs contracts with its customers, meaning that revenue does not hold the financials right away. The managers call this “Total Deal Value, and it is now valued at $3.4 billion, representing a 63 percent increase year over year. During quarter 2, the value of contracts added was $925 million. This is an increase of 175% over 2020 and this means that the company’s backlog growth is accelerating since growth during quarter 2 is outpacing the growth of the backlog over the trailing twelve months. Palantir is progressing in various areas to help in growing its pipeline further for new business and this includes launching Foundry for Builders. This program makes technology available for startups. The firm also signed more deals with the Army, the Air Force, and Coast Guard in addition to a $100 million deal with SOCOM, which is the military’s unique operations segment.

The significant market opportunity for big data

In the opinion of Clive Humbly, a British mathematician, big data presents a significant market opportunity. Data is valuable, but it needs to be refined so that it can be useful. According to Nasdaq.com, data needs to be transformed into plastic, gas, and chemicals, among other things, to create a valuable entity that can drive profitable activity. Data needs to be broken down and analyzed so that it can have value. About eighty to ninety percent of the data in the world is unstructured. Palantir’s Gotham platform enables government organizations to comprehend their data better to generate insights and help in decision-making while the Foundry platform functions similarly for commercial customers.

Conclusion

Palantir has a market capitalization of over 48 billion dollars. The stock might appear to be overvalued, but most shareholders believe that the massive growth opportunities of the firm justify its high valuation. Given Palantir’s growing dominance in government and commercial sectors, the stock is becoming a solid long-term investment.

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