Palantir Technologies (PLTR) bets on large untapped market. Is stock a buy?

Software technology is rapidly expanding into new territories, supported by artificial intelligence and robotics, encouraging enterprises to come up with offbeat solutions for special needs. Palantir Technologies Inc. (NYSE: PLTR), a software company focused on big data analytics, has made large strides since going public last year, leveraging its unique offerings designed for both the government and commercial customers.

Modest Opening

The market value of the Colorado-based tech company, which provides advanced intelligence systems to the U.S government for counter-terrorism operations, grew steadily since its stock market debut and breached the $50-billion mark recently. The stock made modest gains in the early weeks of the IPO but experienced high volatility later, leaving investors concerned. Despite the surprise turnaround in the first quarter, PLTR will likely stay modest in the near future. While it offers bankable long-term opportunities, for now, the stock should ideally be kept on the watch-list.

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Read management/analysts’ comments on Palantir’s Q1 earnings

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In the first quarter of 2021, Palantir reported its first profit as a public company. At $0.04 per share, adjusted earnings also topped expectations. It was supported by a 49% increase in revenues to $341.2 million, with commercial and government revenues jumping 72% and 83% respectively. The top-line performance also exceeded the market’s prediction. The cash balance of the company, which became free cash flow positive recently, far exceeds its relatively small debt.

Untapped Market

The management banks on the addressable market that is yet to be tapped, mainly representing the government’s extensive defense spending and growing demand from commercial clients. The continued product innovation should help it take growth to the next level including the development of Apollo for Edge AI, which works on the pioneering concept of micromodels that form the basis of how AI is operationalized at scale.

Currently, efforts are on to enhance product distribution capabilities by expanding sales channels and developing a direct sales force. Palantir looks well-positioned to take advantage of the exponential data growth globally, a trend that gathered steam after the pandemic triggered a digital transformation wave.

What’s in the Cards

Meanwhile, the complexities of the technologies Palantir offers, such as the Black Box, make customer acquisition a difficult and costly affair. Going forward, high costs related to hiring and employee compensation could weigh on margin performance. Long-term success would depend on the company’s ability to transition from the government-centric model to one that is more commercial — providing businesses the necessary tools to analyze and manage huge volumes of data.  

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IBM: Does growing cloud prowess offer fresh buying opportunity?

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From Palantir’s Q1 2021 earnings conference call:

“We have continued to develop our reach with system integrators, developing targeted joint go-to-markets and geographies, industries, and functional areas. Today, 15 different SIs are partnering with our customers to deliver work on our products. We continue to view cloud providers as channels. We have seen a marked shift where cloud providers are integrating Foundry into their reference architectures and core go-to-market activities.”

Stock Performance

After retreating from the January peak, PLTR has maintained a steady course so far this year. The stock, which closed the last session at $27.38, traded lower during Tuesday’s regular session but stayed above the 52-week average. The shares have gained 18% since last month.