For the past 20 years, Palantir Technologies, Inc (PLTR) has built the most comprehensive AI software stack used to protect countries’ defenses and Special Forces around the world. Known for its Government work for years, an important, seminal moment has arrived for the company:
PLTR’s commercial business has reached a notable inflection point, one which should serve to be a seminal moment for the company when we look back on this moment in the future. Take a look at the multiple inflections within the underlying inflection:
IMPORTANT: Before we dig into the numbers and our bullishness – this is PLTR’s 4th consecutive quarter of profitability. This means Palantir is now heading into the S&P 500 in the next few quarters, an important consideration buttressing our thesis of PLTR going to $30 by the end of this year.
The Shareholder Letter was filled with extremely bullish datapoints. It’s important to understand Palantir’s commercial business is literally in its infancy, with its pivot accelerating forcefully in Q4:
Palantir’s initiative to spur its commercial business has reached a resounding inflection - the flywheel has only just begun to kick in. 2024 is going to be lights out, record breaking year for Palantir, a year which should cement it as one of the dominant long-term winners within AI.
Within a few quarters, the commercial business will be growing more than 100%. To wit, billings increased 100%+ YoY. For us, this is one of the most important metrics from Q4 and a strong reason why we think PLTR is poised to sprint to new highs, quickly:
Palantir is showing impressive earnings leverage with its commercial business taking off.
This is its 4th straight quarter of triple digit earnings growth:
Here is a simplified matrix from which to view its strong results for 4 straight quarters. Note the triple digit earnings growth rate, but also how revenue growth has now inflected strongly from 13% to 20% YoY growth the past few quarters. This growth rate will accelerate to 30%+ YoY the next few quarters:
Palantir cannot keep up with demand. Management was borderline ecstatic on the call, referencing how they are literally being besieged by talent chomping at the bit to come work for them and how they are unable to onboard all the customers who want to adopt their AI platform.
What Palantir is doing is quite remarkable, essentially scaling a 2nd business almost from scratch the past few years. The US commercial business will eventually become the biggest revenue mix in the coming years.
We expect this growth rate to catapult to triple-digits in the next few quarters, allowing PLTR to smash the guidance they provided: only 40% total YoY growth in 2024. Instead, we see 65-75% overall growth for its entire commercial division, which also includes its slower growing international segmentation:
And then, back to Billings. WOW. Just WOW!
In Q1, its customer count will inflect further: 12% growth to 22% sequential growth should soon go to 30-40% sequential growth rates, translating to a J-curve this Q1/Q2 to triple-digit YoY rates. Its going to be fun to watch:
Palantir generated $1B in adjusted cash flow in 2023. We expect it to be a cash-flow generation machine the next few years:
Taken together, the inflection point at Palantir is undeniable - there is a big growth curve coming. While forward numbers will rise, they will not move up as aggressively as they should. The Buy Side will once again be ahead of the Sell Side.
In addition to the commercial business, Palantir’s government business is poised to inflect again in 2024. In aggregate, we see strong upside to 2024 numbers.
Looking further out, in 2026, we see strong potential for Palantir to post $6B in revenues and earn $1 a share in EPS. Relative to consensus, there is a huge dispersion between where the puck is going versus what the Sell Side will be penciling into their models over the next few days.
Take a look at consensus numbers (as of last night):
As of this morning, only ONE analyst has substantially adjusted his numbers to more accurately reflect Palantir’s true growth profile. That is Wedbush’s Dan Ives (Outperform, $30PT) who, like us, can see that PLTR is playing in a league of its own:
“The Messi of AI Delivers in World Cup Fashion… A handful of times every decade there are tech companies that are so ahead of the competition and in a sweet spot of the future growth…yet the Street at the time dismisses it by dusting off their long-term stubborn bear thesis.
On Monday, Palantir went from an “off-Broadway play” to a “primetime Broadway theater right off of Times Square under the bright lights…
Palantir’s commercial business grew at an “eye-popping” 70% in the fourth quarter and the commercial customer count grew 44%, thanks to the AI revolution driving AIP deal flow… It’s clear that as AI use cases explode enterprise CIOs are looking towards [Alex] Karp & Co. as the AI golden child for a platform to build out AI frameworks for the future.”
As for the stock, we expect $20 to be taken out quickly. Usually, the third time through an important round number is highly successful. New highs this week in PLTR would not surprise us. The chart says $26 is on the way:
Execution risk is front and center. As Palantir scales its commercial business, one can argue they may make mistakes along the way. Also, valuation is quite heady. If rates were to rip higher, high-growth multiples such as PLTR's would be susceptible to ratcheting lower
We plan to aggressively buy into Palantir in both pre-market and VWAP into a full position over the first half hour of the day. Should the stock blast off even sooner, we will round out our position as the stock makes 52-week highs. We also plan to buy various In-the-Money and Out-of-the-Money calls in PLTR as well.
We see a $26PT after its next quarter comes out late Spring/early summer. Based on what we learned tonight, we think Palantir has upside to $30 in the second half of the year.
At $30, PLTR would trade for a ~$66B market cap. The market is always quick to discount the good news in dynamic growth inflections, like the one poised to manifest further for Palantir in the coming quarters.
We see strong odds Palantir posts $6B in revenues in 2026, along with a $1 in EPS. With a couple billion dollars of cash flow generation occurring at those levels, one could make the case an enterprise value of $40B – net its $4B in cash - at $20 tomorrow is an attractive long-term entry point for its long-term thesis. Palantir should prove to be one of the most dynamic and tangible revenue, profitability and adjusted free cash flow inflections we will see, not only in 2024, but also over the next few years within the AI arena.
STOP LOSS: We plan to use a close below the stock’s 10-day EMA as our stop on this name over the next two weeks. Thereafter, we will use any break of the 50-day SMA as our stop out of the longer-term tranche to this trade. Otherwise we plan to hold until $30 is achieved.
Longer-term, as $10B in revenues in 2028 begins to get modeled out, an eventual move to a $100B market cap could manifest in the coming years. As such, while heady valuations may seemingly be at play tomorrow if PLTR sprints past $20, we think it’s the start of a period where Palantir’s valuation is poised to only get much headier.
PLTR is a Top Tier Inflection with 70% odds it may prove to be a top 10 trade for us in 2024, an important reason we expect PLTR to be a top 2-3 position for us by Tuesday’s close.
As the stock starts to work, we plan to take off, in increments, the risk on the trade by peeling off partial pieces as the stock lifts into the low-to-mid $20s, especially in the shorter-dated PLTR calls we plan on buying into after Tuesdays open.
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Disclosure: We plan to aggressively buy PLTR Tuesday morning via both stock and in the money and, potentially, out of the money calls. We may change our positioning at a moment’s notice, without notifying you of any such moves.
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