Big Data Software Stock Palantir (NYSE: PLTR) Apple is at a pivotal moment today. Revenue is accelerating, profitability has turned positive — a rare occurrence for software stocks — and the AI revolution appears to be revitalizing demand for its platforms.
Palantir was founded in 2003 and began helping the U.S. military and intelligence agencies in the war on terror. But now it appears the company is transitioning to a more commercially focused company. That’s good news for shareholders, as the commercial market is much larger.
The business has been started.
In the most recent quarter, Palantir showed a significant acceleration in its commercial business. Commercial revenue rose 33% to $307 million, accounting for 45.3% of revenue. This is quickly gaining traction over the traditional government segment, which maintained healthy growth of 23% to $371 million. Both segments accelerated year-over-year, enabling the company to more than double its growth rate year-over-year, from 13% growth in Q2 2023 to 27% overall growth in Q2 2024.
That represents a staggering growth rate, which usually gets harder, not easier, as a company grows. But under the hood, things look brighter in terms of future revenue prospects, especially in the dynamic US market.
In the second quarter, U.S. commercial revenue was up 55%, but would have been up 70% had it not been for the initial low-revenue deployments with “strategic” customers. Total U.S. commercial customers increased 83% to 295, with total customers up 41% year-over-year. Finally, U.S. residual commercial deal value (RDV), which combines all the remaining value of outstanding contracts, was up an impressive 103% year-over-year.
It is noteworthy that the United States now accounts for just over 50% of total trade revenue.
Acceleration coincides with the unveiling of Palantir’s AI platform (AIP)
In his letter to shareholders, CEO Alex Karp included this chart about customer adoption:
As you can see, there seems to be a huge acceleration in customer adoption starting about a year ago — right when Palantir launched its AIP platform. AIP is Palantir’s AI software that helps companies harness the power of large language models (LLMs) and deploy them in real-world business contexts to generate tangible results. CEO Alex Karp said AIP disrupts, or “degrades,” companies’ back-end application development processes, similar to the way Cloud computing Disruption of traditional enterprise technology infrastructure.
From the looks of the chart above, it seems that Karp and Palantir are on the right track with AIP. In his letter to shareholders, Karp highlighted AIP’s ability to harness the power of large language models to drive real business outcomes, saying that using LLMs without the full context of the business and AIP won’t work:
Models with trillions of parameters may imitate Goethe flawlessly, but without more parameters, they add little value to an organization. They are born into this world without any sense of its contours or logic, or even a conception of truth or basic facts, let alone the collective knowledge and insight into the operations of an organization with half a million employees. They are wild animals, and their power and capabilities must be tamed and harnessed. Now we see what may become possible once they are tamed.
AIP also gives rise to new vertical products.
But the growth doesn’t stop there. Karp and his team also noted that Palantir will be rolling out a new software platform called Warp Speed, built on top of AIP. Warp Speed will be a back-end platform designed specifically for modern industrial manufacturing companies. Karp calls it the “American Manufacturing Operating System,” and it builds on Palantir’s previous experience in the military and heavy industries.
from Contact AnalystsWarp Speed looks set to tie all the elements of manufacturing together, from the enterprise resource planning (ERP) system, to the manufacturing execution system (MES), to the production lifecycle management (PLM) system, to the programmable logic controllers (PLCs) for factory automation, to the workers on the factory floor.
With Warp Speed, Palantir is tailoring AI to specific vertical industries in a way that has the potential to disrupt traditional enterprise software businesses — and those markets are huge.
Looking to the next decade
Defense is still very important to Palantir, and to some extent defines its brand. However, commercial is very likely to become its largest segment soon. In ten years, it is expected to overtake defense, which is somewhat limited in its potential size.
Palantir has generated about $2.5 billion in revenue over the past 12 months, but it is also profitable on generally accepted accounting principles. However, the stock is very expensive at 33 times sales.
But given the relatively larger private sector compared to the U.S. and allied defense industries, Palantir’s accelerating commercial appeal appears to have brightened its long-term growth prospects. If the commercial sector continues to grow as it has, Palantir could have a significant impact on several enterprise software sectors. For example, in the context of Warp Speed, the ERP software market alone was worth $71 billion in 2023 but is expected to grow 14.4% through 2032, reaching $238 billion by then, according to Fortune Business Insights.
So, if Palantir stays at the forefront of AI-powered enterprise software with AIP, Warp Speed, and other potential future offerings, it could have a lot of room ahead of it, justifying its current valuation.
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Billy Duberstein And/or his clients do not have a position in any of the stocks mentioned. The Motley Fool has a position in and recommends Palantir Technologies. The Motley Fool has Disclosure Policy.
Where will Palantir be in 10 years? Originally posted by The Motley Fool