I first read about Palantir Technologies in a Bloomberg article in 2007, and it immediately caught my attention. Since then, I have closely followed the company’s development and transformation.
The Name and Inspiration
The name “Palantir” was inspired by magical artifacts from the mythology created by J.R.R. Tolkien. In his epic work “The Lord of the Rings,” palantíri are powerful seeing stones that allow for distant communication and viewing events occurring in different parts of the world. For Palantir’s founders, the technology was meant to be a modern equivalent of these artifacts—a tool to analyze complex, dispersed data and extract significant insights.
Founders and Investors
Among the creators of Palantir were Peter Thiel (also known from the so-called PayPal Mafia and one of the most famous venture capitalists in the American market, including Founders Fund) and Alex Karp, the current CEO (a somewhat eccentric figure with a PhD in neoclassical philosophy). Palantir boasts many reputable and proven investors, including Vanguard, Blackrock, and Ark Investments.
Early Development and Government Collaboration
Founded in 2004, Palantir initially worked primarily with government agencies, including U.S. intelligence. The company’s first product, Palantir Gotham, was designed to combat terrorism and was used by the CIA. Its uniqueness lay in integrating large datasets and providing users with intuitive tools to analyze complex patterns and connections. The success of Palantir Gotham led the company to develop Palantir Foundry, a platform aimed at the private sector.
IPO and Market Performance
Palantir went public in September 2020 at a price of $7.25 per share. Since then, the company has experienced ups and downs. Recently, Palantir has gained significant traction on the wave of AI popularity. Just yesterday, the company announced a major contract with the U.S. Army.
Product Evolution
Palantir has undergone a substantial transformation, evolving from a company that integrated large data verticals from various sources to a publicly traded company offering products for governments and corporations: Gotham, Foundry, Apollo, and AIP.
• Palantir Gotham: Used primarily by government agencies, including intelligence and defense agencies, to analyze data from multiple sources to combat terrorism and other threats. It helps in data integration, management, and protection, enabling users to make quick decisions based on complex datasets.
• Palantir Foundry: Aimed at the private sector, Foundry transforms how organizations operate on their data. It allows companies to integrate data from various sources, build and deploy analytical models, and collaborate on analyses across the organization. Foundry is used in industries such as healthcare, energy, manufacturing, and financial services.
• Palantir Apollo: A software management platform that enables the deployment of Palantir Gotham and Palantir Foundry across various environments, including cloud, on-premises, and decentralized settings. Apollo ensures continuous software delivery and management, allowing Palantir to tailor its applications to the specific needs of clients regardless of the complexity of the operational environment.
• Palantir AIP (Artificial Intelligence Platform): AIP is an advanced AI platform designed to enable organizations to safely and efficiently leverage the latest AI and machine learning models in their daily operations and decision-making processes. AIP integrates AI with existing data systems, algorithms, and organizational workflows, offering a wide range of capabilities from managing material shortages in supply chains to automating shift planning and optimizing transportation routes.
Key Features of AIP
One of the key features of AIP is “Virtual Tables,” which allow organizations to quickly start working with the platform without replicating or duplicating data. This feature facilitates the quick connection of existing data investments with modern AI architecture, maintaining architectural flexibility and improving performance and cost efficiency by leveraging the native functions of different data platforms.
Case Example: Tyson Foods
Tyson Foods, one of the world’s largest food companies, uses AIP and the Virtual Tables feature to accelerate AI-driven processes, allowing the organization to build advanced AI workflows faster while maintaining a simplified architecture and reducing data processing and storage costs.
Financial Performance and Strategy
Recent financial results confirmed the execution of the growth strategy announced by CEO Alex Karp. Key metrics include:
• Q4 2023 Results: U.S. commercial revenue grew by 70% year-over-year (Y/Y) and 12% quarter-over-quarter (Q/Q) to $131 million. Overall commercial revenue increased by 32% Y/Y and 13% Q/Q to $284 million. Total revenue grew by 20% Y/Y and 9% Q/Q to $608 million. The company closed 103 deals valued at over $1 million, nearly doubling from the previous year.
• Customer Growth: The number of U.S. commercial customers increased by 55% Y/Y and 22% Q/Q.
• Adjusted Free Cash Flow: Stood at $305 million, representing a 50% margin.
• GAAP Operating Income: Achieved a fourth consecutive quarter of GAAP operating income with an 11% margin.
Future Outlook
Palantir’s projections for Q1 2024 include expected revenue between $612 million and $616 million and adjusted operating income between $196 million and $200 million. For the fiscal year 2024, the company expects revenue between $2.652 billion and $2.668 billion, with U.S. commercial revenue exceeding $640 million, representing at least 40% growth. Adjusted operating income is forecasted between $834 million and $850 million, with adjusted free cash flow projected to be between $800 million and $1 billion.
Long-Term Potential
Despite some investors expecting faster growth, Palantir is positioned to capitalize on the emerging Enterprise AI market. The sales cycles for the contracts Palantir targets are long, often exceeding 12 months. According to CEO Alex Karp, Palantir is engaged in over 200 advanced-level negotiations, indicating stable demand.
Conclusion:
Palantir Technologies is one of my favorite (albeit controversial) companies due to its competitive edge in advanced analytics solutions. The company’s long-term potential, especially in the AI/ML sector, is substantial, despite current valuation debates. As the Enterprise AI market evolves, Palantir’s robust solutions and strategic positioning suggest significant growth opportunities in the years ahead.
Sources:
• Palantir Financial Statements
• Bloomberg