We want to like Palantir Technologies (NYSE:PLTR) here at The Armchair Trader, we really do. One of the most popular stocks with investors both in the US and the UK, this is a direct play on the huge scope that underpins the growth of data within modern society.
But it seems to us that many investors are backing this one for the idea of Palantir’s future deliverables, rather than because of what it – and its senior directors – are doing right now. And there are ethical issues at work here which hold out the possibility of future run ins with governments, regulators, civil liberties organisations, you name it. Just ask the founders of Cambridge Analytica what can go wrong in Big Data.
In terms of the stock price action, not much exciting has been happening at Palantir Technologies for some time now. The company has a market cap of £36bn and revenues of close to £1bn but its forecast 12 month PE is 127x. That is just staggering and way too rich for us. The stock price has been rangebound since February. We’d like to see more, but the momentum is just not there right now.
Palantir Technologies has solid revenue growth
What we do like is the revenue growth stream, with total revenues well up from where they were in 2018 ($595m) with 2022 estimates from the analyst community parked at close to $2bn. That would represent impressive growth, but sadly net income is down as is the normalised EPS. The analysts can see this and no surprises, the consensus between them is edging towards a sell on this stock.
There are other concerns being kicked around in Wall Street. One of them is this: much of the concentrated selling in Palantir Technologies stock is coming from insiders. It is perhaps possible that they need the money, but some US pundits also think that many execs are not expecting much in the way of returns from the stock in the near future. There is just not enough insider buying activity going on and that is making some investors a little concerned.
Palantir Technologies is being touted in some quarters as a long term buy and hold. The argument for this is that its big data analytics solutions are highly desired by large companies and governments around the world. It is no coincidence the company is named after magic globes from J.R.R. Tolkien’s Lord of the Rings saga which were used for long distance communication and surveillance, including by the bad guys.
Even Peter Thiel is worried now
Palantir Technologies itself is a little bit worried about the Pandora’s box it may have opened in terms of data and surveillance – its founder Peter Thiel expressed concerns at an event in the US this month about the advent on surveillance AI, which he said was paving the way towards a communist totalitarian technology. This is ironic coming from the founder of a business which counts several intelligence agencies among its best customers.
Thiel’s concerns aside, Palantir still has many things going for it – cutting edge technology, an impressive client list, and the scope to become the Microsoft of Big Data. We’ll let you consider the ethics of the business yourselves, but from an investment point of view, although we keep seeing stories from our competitors about how Palantir Technologies stock is ‘popping’ it looks to us like a very large, and very expensive damp squib right now. I suspect some of its insiders agree.
There is, however, no question that AI, boosted by the pandemic, will continue to grow. Revenues from the AI market are expected to grow 15.2% year-on-year in 2021 to $341.8bn, according to the International Data Corporation. They are forecast to grow further in 2022, by 18.8%, and break the $500bn mark by 2024.
