Palantir: A Stock with Significant Upside Potential
This video discusses Palantir, a stock considered by many to be overpriced, despite its strong fundamentals. Using a discounted cash flow (DCF) model, the analysis suggests it still has over 50% upside potential. Recent significant new orders and collaborations further enhance its growth prospects.
Portfolio Update
The presenter provides an update on their personal stock portfolio. Starting with $100,000, the portfolio's value has increased to $143,000. There were no stock transactions in the past week. Regarding options, a covered call was sold on Tesla prior to its earnings report, generating $500 in premium. The total options premium collected in May is $1250, nearing the target goal.
Palantir's Recent Developments
New Orders and Partnerships
Palantir has recently announced a series of noteworthy new orders and collaborations across various sectors.
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Financial Sector: Citibank has partnered with Palantir to upgrade its wealth management platform by leveraging Palantir's tools to analyze data and improve operational efficiency. Prior to this, Palantir deployed its Foundry platform for Société Générale to combat financial crime.
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Defense and Military: NATO has acquired Palantir's Maven AI military system for immediate deployment. This system utilizes AI to collect and analyze data for battlefield planning, including target identification. While contract details are undisclosed, it's estimated to be worth hundreds of millions of dollars, potentially paving the way for more European military contracts. Palantir's technology may also be used in a missile defense system similar to Israel's Iron Dome.
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Industrial Sector: Palantir is deploying its Warp Speed platform with six new clients to accelerate the reshoring of manufacturing to the United States. This platform, launched in Q4 2024, serves as a manufacturing operating system for Industry 4.0, integrating data and optimizing production based on real-time data. The new clients are primarily focused on defense and national security manufacturing, including aerospace, shipbuilding, and space technology.
These developments position Palantir advantageously, particularly with the focus on manufacturing resurgence.
Palantir's Product Effectiveness
Palantir's product is highly effective, compelling companies to adopt it to remain competitive. Palantir's AIP (Artificial Intelligence Platform) has been shown to improve:
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A top 500 bank reduced a 5-day backend process to 3 minutes.
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An auto parts supplier reduced a 100-hour engineering validation cycle to 1 hour.
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The Cleveland Clinic reduced emergency room wait times by 38 minutes and improved operating room efficiency by 40%.
Palantir acts as a "digital brain", integrating data and using AI for analysis and decision-making at an unprecedented scale. It functions as a fundamental, autonomous operating system with no comparable competitors, potentially dominating the global enterprise operating system market.
For a deeper understanding of Palantir's product capabilities, it's recommended to review case studies presented at AIPCon. An example is provided in the video description, detailing how Palantir assisted a US burger supply chain company with supply chain optimization.
Other Advantages
Beyond its product capabilities, Palantir possesses several other advantages:
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Light Asset Model: Minimal capital expenditure on property and equipment.
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Efficient Growth: Significant commercial revenue growth without substantial sales team expansion.
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High Margins: Gross profit margins exceeding 80% and free cash flow margins above 40%.
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Strong Financial Position: No debt and $5.2 billion in cash reserves.
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Potential Share Buybacks: Possible initiation of share buybacks within 12-18 months.
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High Growth Potential: Expected revenue growth exceeding 30% annually.
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Political Alignment: Management's affinity with the previous administration potentially provides favorable conditions, and its focus on the US market minimizes tariff risks.
Valuation and Investment Strategy
The primary concern surrounding Palantir is its valuation. Traditional valuation metrics may not accurately reflect the company's potential. A discounted cash flow (DCF) model suggests significant upside.
A DCF analysis, assuming a starting free cash flow of $1.6 billion in 2025 and a 40% annual growth rate for 5 years, with a discount rate of 8.5%, yields a present value of future free cash flows of $180 billion. Using a Gordon Growth Model for the terminal value and adding net cash, the calculated intrinsic value is $175 per share, indicating a 60%-70% upside from the current price.
However, the model is sensitive to the terminal growth rate. A slightly lower growth rate significantly impacts the intrinsic value. Palantir is considered a core holding for high-growth portfolios, with any pullback representing a buying opportunity. The presenter intends to increase their position in Palantir as their financial situation allows.
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