This has been a year to remember for shareholders of Palantir Technologies (NYSE: PLTR). Investors endured the pain of the stock falling into the single digits after the company went public. However, the technological marvel of artificial intelligence (AI) brought the stock back to life, and the company’s repeated quarters of strong performance further fueled market sentiment.
While investors are understandably concerned that the stock’s 48% move since January will leave little meat on the bones, have no fear. Sometimes investing requires looking decades ahead, and Palantir may hold more promise than most companies you’ll find.
Here’s why long-term investors can buy today and hold the stock for decades.
Government loyalty underpins Palantir’s business
The Internet created the digital world we know today. That means humanity has spent more than two decades creating ever-increasing amounts of data at breakneck speed. About 90% of all the data in the world comes from the last two years. Just think about how much data the world will have in five, 10, or 25 years!
This is an underrated aspect of artificial intelligence (AI), which has become the next evolution of technology. Data plays an important role; AI is data-driven, meaning that organizations with the best data and those that do the most with it can have a competitive advantage.
This simple concept is the key to understanding Palantir’s enormous investment potential. The company develops and deploys custom data analytics software across the Gotham, Foundry, and AIP platforms. The goal of this technology is simple: easily convert data into actionable information in real time.
Palantir may be an enigma because its complex product offers little visibility to investors and outsiders. So instead, let’s look at who has leaned and continues to lean on Palantir. The US government, which uses its virtually unlimited resources to maintain a competitive advantage as a global superpower, has remained loyal to Palantir for more than a decade. Palantir’s technology allegedly helped the United States track down terrorist Osama bin Laden in 2011.
The government continues to support Palantir today. Palantir recently received a new $480 million contract from the Department of Defense. CEO Alex Karp confirmed that the company’s technology is helping Ukraine in its war with Russia. These situations require cutting-edge tools, and Palantir’s relevance both then and now should give investors a clear vote of confidence in the value its software brings.
Discovering years of advantages in the private sector
The US government and its allies are uniquely equipped to spend on the best of the best. That’s why some of the best government tools may take some time to reach the private sector. However, Palantir is starting to gain traction among commercial customers. Ultimately, this is where Palantir’s long-term advantage lies.
Companies have begun to realize that AI is critical to competing in the future and are scrambling to position themselves accordingly. Palantir launched its AIP platform last spring to help companies develop and deploy AI applications. It has been a great success. Alex Karp has stated that AIP’s lawsuit is unprecedented. Palantir’s financial results have since given substance to that claim.
You can see below that revenue growth has accelerated again since AIP launched last year:
More importantly, Palantir’s customer numbers are growing faster than revenue, which could indicate further growth in the future as new applications come online. Palantir’s number of U.S. commercial customers grew 69% year over year in the first quarter and remains modest at 262. There are more than 20,000 large corporations in the United States alone.
Think about the next decades
Palantir does not sell a standard product. It takes time to develop and launch applications, which means Palantir may never exhibit the explosive growth of NVIDIA. However, Palantir appears poised for decades of consistent double-digit growth.
Palantir’s uses range from fraud detection to military operations. In its latest contract with Starlab, Palantir will model a digital clone of a space station to simulate test and maintenance operations. This flexible technology turns any company (large enough to afford the software) into a potential customer.
Additionally, the company is profitable under generally accepted accounting principles (GAAP) and has $3.8 billion in cash with no debt, making Palantir a candidate to spend years buying back shares and driving investment returns through relentless growth in profits.
Where could Palantir be in two or three decades? The corporate opportunities alone give Palantir an important clue. Government affairs arguably also gives Palantir a high floor. Palantir’s current market capitalization exceeds $50 billion. Still, investors could be eyeing a future mega-cap stock if they’re willing to buy and hold it for the foreseeable future.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has posts and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
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