Palantir (PLTR) continues to perform well, buoyed by hype surrounding the AI boom. Jefferies Senior Analyst Brent Till joins Morning Brief to discuss the outlook for the stock.
Till acknowledges that Palantir's main challenge is valuation, describing it as “the most expensive stock out there.” But he's optimistic about the company's improving fundamentals and believes the opportunity for investors when it comes to AI is “enormous.” He suggests, however, that there may be a “better entry point,” which is why he maintains a hold rating on the stock.
Drawing a comparison to the early days of Tesla (TSLA), Till explained, “When this company was founded, it was in a similar situation to when Musk launched Tesla,” noting that Tesla was out of reach for the majority of people.
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Video Transcript
I would like to bring in Brent.
fill.
He's a senior analyst at Jeffrey, Brent, it's great to talk to you.
So if we take a step back now and look at Palantir stock price, it's up just over 40% since the beginning of the year.
There are many questions about the hype surrounding the stock.
Obviously, it was a big sell-off for some investors.
I'm curious, what do you think about Palant's current position?
I think there is still a reserved rating on that name.
Yes, good morning.
Well, with Puniet the fundamentals have clearly improved.
Well, what's holding us back right now is ratings.
This is the most expensive name in our coverage.
Well, great companies with momentum can look expensive in the opportunity set.
And we believe the opportunity set is huge for Pune and AI.
Yes, but we believe there is a better entry point for this stock.
Well, fundamentally, we did a really great job at the beginning of last year, but then we basically produced nothing for 75% of the year.
And then in the fourth quarter, things started to turn around and we turned around all of the poor performance in the fourth quarter of last year and had a very good first quarter.
Both quarters were strong.
I think they got ahead of the AI wave better than others.
Well, obviously AI is infrastructure.
If you look at what's going on at NVIDIA and other companies, they haven't really gotten to the software layer.
Well, Pallant is bucking that trend.
Their suite is seeing great momentum and customer adoption is strong.
So give them credit where credit is due, they're doing a great job there.
But then again, in the software industry, there are several companies that are the single richest companies.
So that means there is a valuation risk at the moment.
There is no fundamental risk.
The foundation is really great.
Yeah, I mean, it's also particularly interesting to hear Alex Karp talk about the biggest use cases and the importance of their companies and the outlook and calculations of where they think the world might be heading, unfortunately. And it's really trying to gauge which governments, which companies are going to best position themselves.
If geopolitical tensions were to increase further, to what extent would that affect the argument for why Pallant would be successful rather than other factors?
That will be helpful.
So half of their business is government and the other half is commercial, and their commercial business is doing very well.
The government business isn't as strong, but it's still a bright spot for AAA.
Yeah, and certainly as tensions rise, you're going to need software to effectively execute your scenario planning, your disaster planning, and figure out what assets you have and where they should be stored.
Well, they've always thrived in that area, but I think the challenge for investors in the government business is that it's hard to talk to the CIA or somebody who has the software and actually see what it's actually doing and whether it's working.
right.
So what we tell investors is that government business is very difficult to analyze because it's difficult to talk to most governments.
They don't want to tell anyone how they use it.
It's very secret.
So it is virtually impossible to predict what will happen in government business.
On the commercial side.
We can do that better.
And I think that's where we've had great success.
United Airlines, here are some other great case studies they have for you:
These are real case studies of supply chain and aircraft maintenance.
Oh, they really do a great job.
So the business of the government, in our opinion, has been ongoing all along.
It's, it's, it's, it's great, great, but um, you get to really work in the commercial business, there's commercial changes happening, and I think this is an area where we need to continue to improve because the government part has not been analyzed.
It's a big event and we don't know when it's going to land.
It is not clear which countries will purchase the product and when.
And those tend to be big deals.
You know, they tend not to be small deals or big deals.
So timing the landing is tricky.
Yeah, so it definitely helps them.
And I think it's their position in AI and the success stories that they're having now that's going to really continue to excite the investors that were there when they started this company.
Just like when Musk launched Tesla, it was out of reach for 90% of the population.
Now, nurses, interior designers and accountants can buy Teslas because Tesla has brought this to the mass market.
That's what initially excited me the most.
This was rebuilt for special people with special budgets, and now they're finally going to change that, and they can come to a bootcamp, buy this product for their supply chain, get it up and running, get value in a month or two, and build on it.
If it succeeds.
Wow, that’s a great decision.
We like that strategy.
It's the same strategy implemented by Elon Musk.
Yeah, so hats off to them.
Well, I missed some of the action during the pause.
But given the valuation concerns we have, I think we can be patient and wait.
