Kirk’s Take On Palantir

Summary

  • Palantir is an AI-driven data analysis company that has established a leadership position in its markets.
  • Palantir benefits from secular growth trends in AI across government and industry. A looser Fed would also aid business spending on AI which helps Palantir.
  • Palantir is expected to be added to the S&P 500 in 2024, which could result in significant inflows and potential gains for the stock.
  • The company’s growth may be challenged by competitors in the AI space, and high stock-based compensation could impact its stock price.

Kirk’s Take pieces are quick bullet point briefs on companies on the Very Short Lists and Punch Card Stocks lists. Use these as the starting point for researching companies to invest in. Make sure to read our Getting Started pieces before investing.

Palantir (PLTR)

Palantir is a AI driven data analysis company providing services to governments, businesses and other organizations. It has carved out a leadership position in the markets it serves. Their business is very sticky due to the cost to replace and relearn with a new system.

Growth could be challenged by a competitor at some point as maintaining leadership in AI is very difficult.

Also, stock based compensation is still high despite coming down a bit recently. Palantir Technologies’ (PLTR) stock-based compensation (SBC) expense for 2023 was $476 million, which is 21% of the company’s revenue. This is a 15.74% decline from 2022, when the SBC expense was $565 million, or 27.42% from 2021, when it was $778 million. If SBC ticks back up, that would could depress the stock price.

I think the big gains are in the next double as PLTR is likely to be added to the S&P 500 during 2024, potentially as soon as the end of April. Addition to the S&P 500 will result in significant inflows from S&P 500 funds (SPY) (VOO) as Palantir will enter as about the 200th biggest company on the index right off the bat.

After S&P 500 inclusion and a likely run up, we will have to be diligent about watching their growth rates and how much money is being sucked out of the company for compensation.

Secular Trend

Clearly benefiting from AI applications to almost everything. An increase in geopolitical pressures is also adding a tailwind. We want the world to not be more dangerous, however, Palantir is a bit of a hedge on anti-globalization trends, territorial disputes, climate change and economic conflicts getting worse.

Fiscal & Monetary Policy

A looser monetary regime favors business spending which is good for Palantir. Government contracts are fat and secure.

Fundamentals

Palantir is on its way to a fortress balance sheet holding $3.6 billion in cash and short-term securities. They have no long-term debt. The company reached profitability year-over-year recently. The are showing growth rates between 10-30% year-over-year depending on segment and cyclicality. This is what I expect to level off at some point 5-10 years in the future.

Technicals

PLTR
PLTR (Kirk Spano)

Risk by fair value gaps, volume analysis, pitchfan and Elliott Wave suggest a pullback to around $20 before proceeding higher. That’s not far from current prices.

PLTR
PLTR (Theresa May)

Theresa correctly called a short-term correction back in early February. The pullback looks about half done based on her supply/demand zone and trend analysis.

PLTR
PLTR (Shooter)

Shooter also shows a mild pullback to around $20 before restarting the journey to the next target around $30. That’s about a 50% gain.

Investment Game Plan

Pretty straight forward buy the dips here.

Financially strong, high growth company with secular and government tailwinds, and benefitting from a looser Federal Reserve too.

Set a couple limit orders to scale in around $20.

Also, sell cash-secured puts. A recent downgrade added volatility and sliced share price giving us a nice opportunity to sell puts.

I like selling the PLTR $20 May cash-secured puts for a buck.

PLTR cash-secured puts
PLTR cash-secured puts (OptionStrat)

OptionStrat Chart

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