A recent major development has changed the debate and direction around Wall Street and tech stocks. First, the generative chatbot ChatGPT took the tech industry by surprise.Many companies are alphabetseemingly unsuccessful, is now on horseback to deploy artificial intelligence (AI) tools. microsoft It invested billions in OpenAI, the creators of ChatGPT, to eat into Google’s search dominance over Microsoft Bing.
after that, Nvidia We shocked the investment community with our first quarter results and excellent guidance. As you can see below, the company’s stock is up 190% year-to-date, with many boats floating on the rising tide.
NVDA data by YCharts.
One of these names is Palantir Technologies (PLTR 1.39%). Legendary investor Peter Lynch said, “Know what you own and why you own it.” Let’s take a look at three things every investor, or potential investor, should know about Palantir.
1. Palantir is synonymous with data
The first thing to know is that Palantir was using machine learning (ML) and AI to harness data long before the current hype. Its products, Foundry and Gotham, are cloud-based, customizable platforms used by governments and private companies to leverage large amounts of data from a variety of sources (databases, emails, spreadsheets, etc.). The platform also enables querying, modeling, and other actions that ultimately lead to better decisions.
Palantir’s latest platform, AIP, enables governments and businesses to securely integrate large scale language models (LLMs) that answer questions, create original content, and interact with users in human-like ways.
In a real-world example provided by Palantir, a complex manufacturing and distribution company on the track of the storm uses Palantir’s AI to track trucks, parts, and pending orders, far more efficiently than systems can. data can be captured. human operator. The user can then contact her LLM at the company to determine which orders are affected and take appropriate action to minimize disruption.
Gartner recognized Palantir as a visionary company in the 2022 Magic Quadrant for Data Integration, forester The Wave for AI/ML Platforms for Q3 2022 report classified the company as a leader, the highest possible position. This know-how is why more and more defense ministries, governments and companies rely on it, including the U.S. military and Ukraine to defend their territories from Russian aggression.
2. Now it’s all about growth
The fact that Palantir was profitable under generally accepted accounting principles (GAAP) in the last quarter made headlines, but the company’s earnings per share of $0.01 isn’t a big deal. Right now, the company is all about customer and sales growth.
One of Palantir’s efforts in recent years has been to expand its customer base beyond government into more commercial businesses. As you can see below, the execution rate has been high, with total customer numbers growing over 150% over the last two years and revenue reaching $2 billion in the next 12 months.
Data Source: Palantir. Chart by author.
Of the 114 customers added last year, 96 were commercial customers. This is great news because while the government has ample money, there is also a huge market of commercial businesses to tap into to grow.
Palantir expects revenue to grow 16% to $2.2 billion in fiscal 2023, maintaining GAAP profitability. Token profits are excellent as they show that companies are very profitable once they scale. However, investors should look to revenue and customer growth as key performance indicators at this stage.
3. Elephant in the room
If you follow Palantir, you’ve undoubtedly heard about the dreaded Stock-Based Compensation (SBC). First the basics: What is an SBC? Companies typically reward their executives and employees by giving them stock in their company, in addition to salaries and cash bonuses.
By increasing the number of shares outstanding, SBC dilutes (or reduces) the value of each share. In layman’s terms, as a company’s total number of shares increases, each share represents a smaller portion of the pie. In 2022 alone, Palantir has spent his $565 million worth of his SBC, which is a whopping 30% of his sales, and as you can see below, the number of diluted shares he has in 2021. It has grown 24% since then.
Average Diluted Shares Outstanding Quarterly data for PLTR from YCharts.
What is rarely talked about is that SBC has several advantages:
- Align employee and investor goals (both profit when stock price rises).
- Save the cash your growing business needs. Palantir has amassed a war chest of $2.9 billion in cash and investments without incurring long-term debt.
- Less cash goes to Uncle Sam because SBC’s expenses are tax deductible.
Many companies plan to repurchase their shares later to offset the dilution. The final big news for Palantir investors is that SBC fell to 22% of Q1 sales, so dilution will likely slow from here.
Despite the stock market crash this year, it’s still 60% off its 2021 high.Not cheap at 16x sales, but a much lower valuation than the same growing data company snowflake 25 o’clock.
Palantir stock has a lot of potential to benefit long-term investors, and it’s making good use of AI. However, given stock valuations and recent explosive growth, dollar cost averaging is very important.
Alphabet executive Suzanne Fry is a member of the Motley Fool’s board of directors. Bradley Guichard has positions at his Alphabet and Microsoft with the following options: His January 2024 $10 long call to Palantir Technologies and his January 2025 $10 long call to Palantir Technologies. The Motley Fool holds positions with and recommends Alphabet, Microsoft, Nvidia, Palantir Technologies, and Snowflake. The Motley Fool recommends his Gartner. The Motley Fool has a disclosure policy.
