Summary

• Palantir has proven Big Data can be profitable, with a unique model and high-paying customers, making it a standout in the tech industry.

• The company’s partnerships with Anduril and xAI, along with its strong financial performance, indicate significant growth potential.

• Despite its high valuation, Palantir's consistent revenue growth and limited customer base make it a compelling long-term investment.

• To manage risk, build positions in tranches and capitalize on PLTR’s dominance in government and defense technologies.

For two years, Palantir Technologies has been the hottest stock of the year. It was the cool A.I. stock before A.I. became mainstream. Today Palantir is one of the few companies that proved that Big Data can be a profitable business.

Before diving into Palantir, let’s reflect on the cyclicality of the tech industry. Every time a new buzzword gets launched, I quickly tune it out. This happened with mobile apps, social networks, big data, SaaS and more. These trends come and go all the time. In fact, many public companies update their earnings calls with these buzzwords quite often. There are a few apps that track keywords on earnings calls if you want to follow along.

But Palantir has definitely been in a category on its own. The company pursued Big Data & A.I. in its own way for more than a decade. It has a black box on its delivery model and works with a very small number of customers that pay very well. Which is why the company caught my attention and I bought the stock in February.

A Big Bet on a Leaner, More Profitable America

The story for Palantir has just begun. Right now the market is on the right side of history. When President Trump took office in January, investors were shown a new path to a more profitable country. In less than three weeks, Trump and Elon’s DOGE has saved the American taxpayer billions of dollars. Elon’s current goal is to increase spending cuts from $1 billion to $4 billion per day. This is an astonishing amount of money.

For context, each DOGE team has four key members: a Team Lead, an Engineer, a Human Resources Specialist and an Attorney. The key factor for DOGE’s success has been having an intelligent engineer in every division. This is to help DOGE make quick decisions on a regular basis. DOGE has reduced the friction when it comes to data collection any more. When I heard this storyline, I realized that Palantir was doing the same thing but on two different fronts.

Yes there are times when Palantir saves taxpayers money. But Palantir takes this development one step further with integrated intelligence. As an investor, there are two ways to look at Palantir’s product offering. The first is A.I. I know a lot of investors that are looking to invest in OpenAI, xAI or other competitive startups in the private markets. Even if those opportunities aren’t available, some investors bought into Nvidia stock. But not everyone was as lucky. Even Masayoshi Son, the founder of SoftBank (OTCPK:SFTBY), sold out of Nvidia after first investing in it in 2017.

The second step for Palantir is a bet on the U.S. Government’s needs for better Defense & Intelligence. President Trump has made it very clear that he needs America to be first in everything. And defense is a key spending category for the United States.

New Product Initiatives

Before diving into the earnings, let’s discuss two Palantir partnerships that caught my attention last month. The first is with Anduril, which is a young defense contractor competing with the major primes such as Lockheed Martin and Raytheon.

Anduril will be working with Palantir on Operation Warp Speed. This is an initiative to revitalize the manufacturing operating system of America. Something that is greatly need as President Trump negotiates new tariffs on all foreign imports.

Palantir Investor Deck

The second major initiative I noticed was with A.I. If you want to deepen your understanding of A.I. reasoning, I recommend reading this Seeking Alpha article on Palantir.

While I’m not an expert in A.I., I am a power user of many popular apps. One of my favorites is xAI’s Grok by Elon Musk. This is only A.I. where you can pull relevant, real-time information on any trending topic. Earnings announcements is one good example but it works well for politics, news, and much more.

The reason I mention Grok is because Palantir will bring it to the enterprise. I don’t have all of the details on this partnership yet but I recommend watching Palantir’s video on X. If you have been following the demand for Nvidia GPUs, then you’ll know that Elon’s xAI has the largest data center cluster in the world, based in Tennessee.

Palantir X Post

Grok-3 was released two weeks ago and was benchmarked as the best A.I. in the world. I use it every day. Which means this partnership with Palantir has not been priced in yet and its progress will show up in the next quarter. I look forward to seeing how the xAI-Palantir relationship evolves.

Palantir Financials

Now Palantir is a powerhouse stock and has gone up 250% in the past year. The stock peaked at $124 last month because of its positive earnings announcement. Even though the valuation is sky high, the current premium is justified given how profitable the business has become.

Google Finance

At the moment, Palantir is delivering a high double-digit revenue growth across each division. This is most impressive because it is an enterprise software business with a low customer count.

Palantir Investor Deck

The limited customer count is the compounding factor for me here. You can also see in the FinChat chart below that the net revenue retention is trending even higher now. Which is a very positive sign for a software company.

FinChat

Palantir also won multiple +$1m contracts with new customers this quarter. It is impressive how few customers a massive software company needs to become a profitable business. I think this value will accrue over time with Palantir’s sticky business model.

Palantir Investor Deck

The Investment Risks

This is a bullish position but you need to dip your toes in slightly. Don’t go all into Palantir because the stock is up this week. Instead focus on building up a position over the long run. Since the momentum died down, gravity brought the stock price down to the $80s again.

When building riskier growth positions like Palantir, I recommend buying stocks in tranches. Typically I decide ahead of time how much I want a single stock to take up in my portfolio. For example, with Palantir it might be 6% of my total portfolio. So instead of building up a 6% position in Palantir today, I’ll split up the stock purchases in three allocations over time.

I’ll buy the first ⅓ when I’ve completed my initial due diligence. The second ⅓ will be allocated around the next management event. For public companies, that tends to be earnings but it can be other major announcements too. It’s important to extend your timeline over 3-6 months. This process creates discipline and helps you become more invested in the real story.

You buy the last ⅓ after management has made good on their promises. Maybe a surprise earnings beat, a new product launch or another major announcement. After six months, you will have more confidence in your position. I think this capital allocation strategy needs to be applied to Palantir as well. But instead buying in at ⅓, build a 10-20% stake as your initial allocation. This is a high-growth stock and the price will be volatile going forward.

Palantir’s Valuation

Growth stocks are tough to value. Typically where growth and value diverge is when too many investors are chasing the same stock. We’ve seen this same story play out with Tesla and Apple in the past. But unlike those companies, Palantir is in a league of its own. There are no direct competitors.

The challenge with Palantir is the entry point. As mentioned earlier, the stock peaked at $124 in February but is now back in the low $80s. There was too much momentum going into the earnings season before. Now that hype has died down. Especially after Defense Secretary Pete Hegseth announced the 8% annual cut to defense spending over the next five years.

Initially I was bullish on the stock but have found $80 to be a fair entry point at the moment. The stock has trended towards $80 since the 2024 U.S. election. I don’t think we will see much price action on the stock in the near-term. In fact, the 400x P/E ratio will keep away most value investors for the time being.

Instead I think Palantir’s stock will continue to go the way of Tesla’s stock in the future. The P/E ratio will be above 100x for the next 2-3 years. There will be two primary drivers for this rich valuation: (1) earnings growth will never catch up with the price action; and (2) Palantir will win more government contracts, resulting in more momentum. I think $80 is a good price to hold the stock at the moment.

The Future of Government A.I.

I think the demand for new government technologies will rise based on two factors. First, is that A.I. gets cheaper and more powerful. The momentum for building supercomputers with Nvidia GPUs will unleash many new companies. Elon’s xAI is the perfect example of this after launching Grok 3 on X last month. A rising tide will lift all boats, which includes Palantir.

The second factor is that Palantir specializes in government & defense technologies. Palantir already dominates this domain and it will be difficult for new startups to compete with them at this point. Plus if DOGE & Elon are successful, taxpayers will demand more dollars be invested in better software. Since Palantir is already integrated into the government workflows, more dollars will be allocated towards them going forward. Palantir might have some customer concentration risk down the line but I don’t think that’s a major concern right now.