This is a repost of a short analysis of Palantir that I initially uploaded and shared via Notion. I've decided to upload it to Post Apathy to make it less complicated to navigate the things I've written.
This is not meant to be a financial or technical evaluation of Palantir, but an assessment of the opportunities for commercialisation that make this an undervalued stock and one of the best growth plays this decade.
If you're looking for financials or technicals, please refer to the Further Reading section at the end.
Both before and after its public offering, Palantir has remained a significantly misunderstood company whose deep value to investors has been obscured by rumours, technical illiteracy, and a self-cultivated mythos and aura of mystique cultivated by its Thielan sphere of founders and investors.
Palantir is a data analytics company whose main product is its software technology. Their business model is fairly unique; while centred around its software product which integrates data from multiple systems and visualises them in an intuitive, non-technical manner. It also offers consulting-adjacent services as their unique 'Forward-Deployed Engineers' (FDE's) are responsible for implementation of their software in client workspaces.
Contrary to popular misconceptions, Palantir is neither a pure-play consultancy or a data collection company, and data monetisation plays no role in its business model. The clients already own the data and control Palantir's level of access to it; they just use Palantir's software as a tool with which to intrepret it. It can be summarised as a software company with a consultancy offering for added value.
Palantir is also often understood as a private government, intelligence, and military ('GIM') contractor with a technology edge. The company indeed received seed investment from the CIA and also began exclusively contracting with various departments in the national security establishment, and they currently derive over half their revenue from GIM contracts alone. This presents a short term risk which they are working hard to eliminate through significant commercialisation efforts.
It is these efforts which make Palantir an attractive growth opportunity. There are strong indications that Palantir will go toe-to-toe with some of the largest commercial software companies such as Salesforce (NYSE: $CRM) and Snowflake (NYSE: $SNOW) over the course of the coming decade. They have also recently signed contracts with several large scale commercial enterprises, and have an extensive track record of working with NGOs. This evidences points to their desire to make GIM contracts a negligible source of revenue in the future.
A smaller risk is baked into its business model; the use of FDSE's may limit its growth as it will need to match a growth in clients with a growth in headcount as more engineers may be required to implement Palantir software in client workspaces. It is yet to be seen to what degree this consultant-style service will play a role in slowing growth in the near term, though the leadership is known for its strategy of sacrificing short term gains for significant, long term growth.
Their commercialisation efforts, positive client reviews, product moat, and long term focus demonstrates the versatility of their technology and strong leadership, which is why Palantir is on course for a very profitable decade and will be one of the few market outperformers in this time period. Owing to the state of the market, attempting to give a firm price isn't possible. In the long run, however, I am confident that Palantir turns into a triple-digit stock.
Palantir's Business Model
Palantir is mainly divided between two products:
- Palantir Gotham - primarily used by U.S. intelligence services and the department of defense.
- Palantir Foundry - primarily used by corporate clients and financial services.
A third product, Palantir Apollo, helps with the deployment and updates of Gotham and Foundry. Palantir Metropolis was a former division dedicated to financial services that was wound down in the earlier half of the previous decade, as co-founder Joe Lonsdale explains here.
When Palantir filed to IPO, it's S-1 was notable for its stinging rebuke of Silicon Valley. A running theme in the Thielan sphere is that Silicon Valley's ideology of replacing people with computers is wrong. Most software companies are focused on removing the human from the equation and maximising software automation of data aggregation, interpretation, and execution of decisions.
Instead, what software like Palantir's aims to do is to empower human beings through non-technical software products. It's cliché but they do it well as evidenced by client reviews and software engineers' responses. Palantir has focused on building a complex back-end software system with a simplified, intuitive front-end design centred around the human user.
Palantir's philosophy is succinctly summarised by Martin Manville, co-head of one of Palantir's branches (Gotham Foundry) as "building Iron Man suits, not robots." This is what makes Palantir particularly potent; its replicability and versatility across a range of sectors and technological literacies could make it the default proprietary software for data integration and analytics in the business world. With no-code products making headways owing to lower cost of use, Palantir's advantage is clear.
The Role of Data
The key misconception surrounding Palantir is that it collects and sells data, presenting a threat to civil rights, data privacy, and helping in building a stronger national security state. It doesn't.
Palantir provides the tools with which to organise and interpret existing sets of data held by clients. From start to finish, Palantir is not involved in collecting that data in the first place. Its access to that data is entirely mediated by the client themselves. Nor does Palantir offer services that store this data, and as a consequence cannot sell it. In short, data collection and monetisation is not a part of Palantir's service or business model.
Forward Deployed Engineers (FDEs)
The world of software tends to be divided between those who create the product (engineers) and those who implement it (consultants). Palantir's unique blend comes in the form of their FDEs. Whereas software companies pay significant sums for their sales departments, Palantir's leadership has focused on allocating this money to the FDEs who are able to implement Palantir's software in the client workspace and customise it according to their client's needs. This ensures that Palantir's stated aim of making its software as human-intuitive as possible is fulfilled; there are no miscommunications between engineers, sales reps, and consultants. The FDE fulfils all three roles.
Additionally, the presence of FDEs makes them a point of reference between the client and Palantir. Their role in customising it according to client needs means that to really benefit from Palantir's technology, they will want the FDEs around regularly. This creates a very sticky relationship that ensures clients maintain a long term relationship with Palantir as its software becomes integral to their operations. If the goal of the company's leadership is long term growth over short term gains, then this is one way to ensure it.
Palantir is not profitable. Like many growth tech companies, Palantir is less focused on short-term profitability and more on building the groundwork for long-term growth. In the early stages of building Amazon, Jeff Bezos famously eschewed profits in favour of building their moat through a strong growth strategy. Twenty years later, Amazon is reaping the rewards. Bear in mind the below graph is pre-coronavirus, so this will yet be dwarfed by Amazon's report for 2020.
Funding Palantir through seventeen years of losses has not been an easy ride but it shows the deep conviction that its investors have had in the company. If the leadership can execute on this strategy and achieve profitability some time in the 2020s, then it will have ensured significant growth well beyond, possibly into the 2030's.
Palantir in the Public, Private, and Non-Profit Sectors
Is Palantir a defence contractor?
Palantir is often misunderstood as being a private sector version of the CIA, helping the American military to conduct its drone wars and kidnap people abroad. This mystique has been to a large part cultivated by Palantir themselves, mainly as a marketing tool (especially by permitting the illusion of Peter Thiel being a founder of Palantir when he was not).
Palantir's strategy has been to develop a strong moat through government contracts before launching itself into the commercial sector, much in line with Peter Thiel's stated philosophy in his book, Zero To One, of securing a monopoly in a niche corner of the market before expanding elsewhere. Therefore, labelling Palantir as a defence contractor is an inaccurate and historical understanding of the company and doesn't take into account its current business activities nor its plans for future growth.
Palantir began its work with its first client being the USIC, and spent much of its first decade in existence exclusively serving government and defence departments and agencies. In 2016, Palantir won a case against the US military arguing that the the military violated the Federal Acquisition Streamlining Act by not allowing for competitive bids from the private sector. This helped Palantir to secure even more contracts, and without this legal victory it would be unlikely that Palantir would be operating as large as it does in the defence area even though its early years were almost exclusively with government wings.
On a macro level, it is largely impossible to find large businesses that don't do business with the various apparatus of American empire. For instance, Amazon Web Services hosts the CIA. Microsoft also has lucrative contracts with the US military. The list can go on. Silicon Valley and the slew of technology companies that followed were largely focused on commercialising wartime technologies (and receiving further military funding to do so). While questionable in some cases, I do not see a strong enough case to write off Palantir's activities as a whole owing to its involvement with GIM, particularly as the company is busy accelerating commercialisation of its software.
Is Palantir commercialising?
Palantir is rapidly accelerating acquisition of commercial contracts as evidenced by its IPO in September 2020, and its Demo Day on the 26th January 2021 tailored towards potential commercial users of their software.
Jason Payne, a former Lead Philanthropy Engineer in Palantir lays out a compelling case for why Palantir's closest industry parallel is Salesforce (NYSE: $CRM). Palantir may even become a strong contender to go toe-to-toe with famous softare companies like Snowflake (NYSE: $SNOW). These noted software synergies demonstrate Palantir's numerous possibilities, and further potential clients in the years to come may very well include air travel, pharma, and logistics & supply chains firms.
Palantir recently signed a 'multi-year enterprise agreement' with Rio Tinto (ASX: $RIO), the world's second largest metals and mining corporation. The aim is to 'integrate raw data from a multitude of disparate sources into a representation of critical mining operation'. Palantir has also 'extended their partnership to support BP as it works towards its ambition to become a net zero company by 2050 or sooner'. This week, Palantir and IBM signed a deal so that IBM could sell Palantir's software to clients, turbocharging Palantir's internal sales team of 30 to a sales team of 2500+ people through IBM's network.
One of the best analyses of Palantir's growth possibilities come from this analysis of Palantir's potential network effects. Palantir has the opportunity to 'develop flywheel network effects' and 'have created their own market'. The qualitative and quantitative analysis in this piece is convincing and if it bears fruit, makes a strong bull case for the company's commercialisation efforts.
I estimate that within 5-10 years defence involvement is likely to make up a fraction of its business as Palantir aggressively rolls out its software to commercial clients. The speed with which Palantir is doing this has played a role in why so many institutional and retail investors have missed out on what is an incredibly undervalued growth stock; better for those of us early to the party.
Does Palantir carry out non-profit work?
Beyond commercial contracts, Palantir has an extensive portfolio in the NGO sector. Here are a few examples:
- Palantir worked with the World Food Program to streamline its data collection processes and improve operational efficiency. [source 1] [source 2]
- Palantir worked with the National Center for Missing and Exploited Children to 'ingest evidence, find clues in the evidence, and connect the dots to find the perpetrators'. According to Payne, Palantir's software was critical to locating and jailing many offenders. [source 1] [source 2]
- Palantir worked with the International Consortium of Investigative Journalists to integrate and analyse data exposing a crimne syndicate stealing dead bodies and selling body parts for profit. [source 1] [source 2]
Palantir's applications can be divided into three distinct spheres:
It's a mixed bag, with the company emphasising its desire to deploy its software to help both the American government and military in a wide number of fields, as well as working with NGOs to deploy the same software to aid in emergency food delivery and catching paedophiles - not to mention the recent focus on bringing Palantir to the commercial sector.
The versality of Palantir's technology is a strong argument against moral apprehensions of investing in a company like Palantir; similar concerns are rarely, if ever, raised against companies with an even greater exposure to military and intelligence services, and I believe these objections tend to be due to Palantir's embracing of a certain brash and uncaring aesthetic more than anything else. If we look beyond the form and into the substance, we find something very different and valuable in Palantir as a software company.
On Palantir's IPO:
- Palantir and the Chaos Dance
- Palantir IPO: Deep-Dive Analysis
- Palantir: On Business, Cults, and Politics
On Palantir's philanthrophic activities and comparison to Salesforce ($CRM) and Snowflake ($SNOW):
- PLTR vs Child Rapists, Starvation, Hurricanes, Ukranian Mafia, and $CRM (DD from an Early Palantir Engineer)
- Pick Palantir Over Snowflake?
On Palantir's potential network effects:
For a walkthrough of Palantir's software: