Tom Nash
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"Tom: Everything I hear and read says to sell palantir?"
🕑 Added 2024-11-27 13:31:56 +0000 UTCI see the noise.
Everywhere you turn, there’s another headline screaming to sell Palantir.
The media, the analysts, and even some investors can’t stop obsessing over valuations, overhyped AI narratives, or Alex Karp’s insider sales. But here’s the deal, investing isn’t about following the herd. It’s about doing the homework, understanding the fundamentals, and playing the long game.
So let’s break this all down, layer by layer.
Palantir isn’t just another tech company. It’s building the operating system for the new global AI driven economy. If you look at the problems they’re solving, global defense, supply chain management, healthcare and large scale manufacturing, it’s clear that Palantir’s platform is a necessity for every medium to large scale business than wants to stay relevant going into the upcoming decade.
People love to oversimplify, reducing the narrative to short term earnings and valuation multiples. That’s a rookie mistake.
First, let’s tackle the valuation question. Palantir’s PE ratio is high, no doubt about it. But so was Amazon’s when they were expanding their AWS cloud business. So was Tesla’s when they were scaling EV production. High growth companies often look “expensive” on traditional metrics because the market is pricing in future growth. The key is understanding whether that growth is realistic and sustainable.
For Palantir, the answer lies in their numbers and strategy.
Palantir’s fundamentals are phenomenal. Revenue growth consistently exceeds 30% year-over-year, a hallmark of a company still in hyper growth mode. Gross margins hover around 80%, which is exactly what you want to see in a software company.
Free cash flow is now $1 Billion and growing at 360% over the past 3 years, signaling that the business is moving toward greatness.
Critics will point to the lower operating margin compared to giants like Microsoft, but those companies are at a different stage of maturity. Scaling takes investment, and Palantir is playing the long game.
Palantir’s net dollar retention rate, which measures how much existing customers spend over time, is currently at 115%. This indicates that not only are customers sticking around, but they’re also increasing their spending.
AI isn’t a side hustle for Palantir, it’s literally the backbone of their entire platform. From Gotham to Foundry to Apollo, their products are designed to make sense of massive amounts of data, enabling real time decision making.
Gotham is used by governments worldwide for defense and intelligence. Foundry is helping companies optimize supply chains, predict customer behavior, and streamline operations. Apollo ensures seamless software deployment across any environment. These aren’t just buzzwords, these are solutions that are already delivering incredible results for Palantir's partners.
Critics argue that relying on government revenue is risky.
Here’s the reality: government contracts are some of the stickiest and most reliable revenue streams you can have. Governments don’t switch vendors lightly, especially not for mission-critical software. Once you’re in, you’re in for the long haul. Palantir has spent years building relationships with agencies like the Department of Defense, and those relationships are paying off. If anything, government contracts are a MASSIVE moat, not a weakness.
On the commercial side, Palantir’s growth is accelerating.
Foundry is being used to optimize hospital operations, predict patient needs, and even accelerate drug development. In logistics, Palantir’s software is helping companies like Airbus predict maintenance needs, reducing costs and downtime. The energy sector is another frontier, with Palantir enabling companies to optimize resource allocation and reduce inefficiencies.
Google and Microsoft, which often come up in discussions about Palantir competitors, focus on broad, horizontal solutions, like cloud services or machine learning frameworks. Palantir, on the other hand, specializes in vertical integration, tailoring its solutions to specific industries and problems. This focus allows Palantir to go deep where others go wide, creating a moat that’s nearly impossible to replicate.
Now, about that valuation.
At first glance, Palantir’s multiples can seem daunting. But let’s put this in perspective by looking at other high growth companies.
Tesla traded at absurd valuations for years because investors believed in its long term vision. And they were right. The same was true for Amazon during its AWS expansion.
High growth companies often look expensive in the short term because the market is pricing in future dominance. The real question isn’t whether Palantir is expensive, it’s whether it can deliver on its promises.
Can the share price drop significantly in the short term? YES!
Palantir can drop 30% instantly without warning.
When a stock like Palantir experiences volatility, it’s easy to panic. Analysts downgrade it, headlines scream overvalued, and suddenly you’re questioning your conviction. But successful investing requires tuning out the noise and focusing on the long term fundamentals. If you believe in Palantir’s mission, the daily price swings are irrelevant. The company’s trajectory is what matters.
Palantir’s long term vision is aligned with several megatrends shaping the future. The growing importance of AI, the increasing reliance on data driven decision making, and the complexity of global challenges all play to Palantir’s strengths.
This isn’t a company chasing trends; it’s defining them.
For long term investors, the key is patience. Palantir isn’t a get rich quick stock. It’s a company building the infrastructure for a data driven economy. That takes time. But for those who can stomach the volatility and hold through the ups and downs, the potential rewards are significant.
Now, if you found this article interesting, there is more when that came from.
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Comments
Michael Lecavalier
Excellent read :) long term here :) DCA baby ! Thank you Sensei ;) cheers Mike
Miketea
Thanks for writing this article and putting a head back to headless chicken like me! :)
