Could Palantir Potentially Lead to Millionaire Investments?
With an increase of over 40% in shares since November 4th, Palantir Technologies (PLTR 3.78%) has notably benefited from Donald Trump's triumph in the 2024 presidential election. Yet, is this steep surge justified by fundamentals? Let's delve deeper into how the coming years could shape up for the data analytics company and its shareholders.
Pioneer in military and law enforcement analytics
Palantir Technologies lends a hand to the government and other clients through big data analytics. This involves evaluating substantial amounts of data to uncover trends and beneficial insights. It monetizes this service through a software-as-a-service (SaaS) structure, providing clients with continuous access to its platforms at a recurring fee.
Established during the U.S.'s war on terror in the 2000s, Palantir aided the government in complex missions, such as the hunt for Osama bin Laden. Subsequently, its law enforcement capabilities were utilized by Immigration and Customs Enforcement (ICE) to assist with profiling and deportations during the Trump administration.
Slate magazine opines that Palantir's software operates by scouring government records (like those from the DMV or child services) to uncover potentially undocumented individuals before handing the information to law enforcement. The integration of large language models (LLMs) could fortify Palantir's software additionally by offering real-time insights to agents working in the field.
Is Trump's election victory indeed groundbreaking?
As per the U.S. Department of Homeland Security, approximately 11 million undocumented immigrants reside in the U.S. as of 2022. And just like in 2016, immigration law enforcement was a crucial aspect of Donald Trump's 2024 presidential campaign. With the Republican party dominating the House and Senate after Trump's victory, investors anticipate Palantir may contribute to Trump's agenda, which could entail mass deportations.
The firm boasts a proven history of working with the government, and its extraordinary resilience to public pressure was striking during the first Trump administration. However, investors shouldn't get overly energized. Occasionally, news can generate unwarranted hype about a company, leading to an exaggerated stock response.
Palantir received only $127 million in revenue from its ICE collaboration between 2013 and 2022, a figure that appears unimpressive when divided by almost a decade. This income pales in comparison to other Palantir contracts, like the $480 million deal with the U.S. Army signed in May to aid the development of its Maven Smart System – an artificial intelligence (AI) platform designed to identify and target enemy military systems.
Consequently, Trump's election may not significantly revitalize Palantir's business prospects as much as its stock reaction might suggest. Instead, investors may want to focus more on the company's current fundamentals.
Is Palantir's stock a pathway to millionaire status?
Palantir's third-quarter revenue soared 30% year over year to $729 million, which CEO Alex Karp attributes to the escalating adoption of AI by U.S. government clients, making up around 44% ($320 million) of its sales in that period. This growth trend is likely to continue over the long term, and Donald Trump's election could potentially bolster it. Yet, in the best-case scenario, Palantir's valuation seems detached from reality.
With a forward price-to-earnings (P/E) ratio of 143, characterizing this stock as "priced-for-perfection" seems like an understatement. In contrast, the S&P 500 (SNPINDEX: ^GSPC) has a forward estimate of merely 23, while the AI industry leader, Nvidia, displays a forward P/E of 38.
Since its initial public offering, Palantir has undoubtedly generated its fair share of millionaires with a 530% growth in its shares. Nevertheless, potential new investors should be wary of ending up as "holders of the bag" when they ultimately decide to dispose of their shares.
- Given Palantir's strong relationship with the government and potential contributions to Trump's immigration enforcement policies, some investors might see this as an opportunity for profitable investing in Palantir Technologies.
- However, it's crucial for potential investors to consider Palantir's current financials, such as its high forward P/E ratio, before making any financing decisions related to Palantir's stock.
