Palantir earnings: Blockbuster growth amid high expectations
We raise our fair value estimate off the back of earnings.
Mentioned: Palantir Technologies Inc Ordinary Shares - Class A (PLTR)
Key Morningstar metrics for Palantir Technologies
- Fair Value Estimate: $115
- Morningstar Rating: ★★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Very High
What we thought of Palantir Technologies’s earnings
Palantir PLTR is up 6% in after-hours trading—a small move given sky-high expectations—while posting its largest annual revenue growth in four years (up 48%). The Rule of 40, a summation of revenue growth and operating margins, reached an impressive 94%. US commercial grew 92% year over year.
Why it matters: Palantir, with 40%-50% retail ownership, is a barometer of sentiment regarding the future of artificial intelligence. This quarter’s earnings keep the enthusiasm intact. We love the company, but believe valuation is a major headwind, going forward.
- Palantir trades at approximately 100 times revenue, a roughly 500% premium over other AI-oriented companies. Despite the company having robust competitive advantages tied to its sophisticated ontology, we believe this is turning into a difficult-to-justify valuation story.
- US commercial, the segment that includes nongovernment entities, is proving to be a massive success. We are seeing a rapid adoption of the Palantir software thanks to diverse, efficiency-driving use cases. We project continued penetration in this large addressable market.
The bottom line: We keep our narrow moat rating and raise our fair value estimate to $115 from $100, due to the largest sequential guidance increase in Palantir’s history. If you are a potential customer, we believe Palantir is the ideal AI software. If you are an investor, we recommend sitting out.
- We use a discounted cash flow model to estimate the intrinsic value of the business. Our current DCF is pushing up against rational boundaries. We are projecting an average of 40% annual growth over the next five years, with revenue climbing to $21 billion from $4.2 billion.
- While we believe the market price has disconnected from our core intrinsic methodology, we acknowledge that momentum could continue to fuel Palantir shares higher. Chasing momentum here is risky—any slowdown will likely result in multiple compression that wipes out returns.
