What Alex Karp Said:
Morgan Stanley Research Report:
Alex Karp On Government Revenue:
Karp On Edge AI:
What Alex Karp Said:
When asked about Palantir stock, and the failure of the stock after falling over 70% within the past year, Alex Karp CEO of Palantir stated how he “never” watches the stock price.
Moreover, Karp mentioned how Palantir have launched 5 of the most “important products” in the world currently, some of which play an active role within everyday life. These products include aiding the extermination of COVID, as well as the vaccination distribution within recent times.
“Every time we launch a product, people think we are idiots”, however often these products power the world. Furthermore, Karp stated how, “we are in very difficult times, and Palantir is built for difficult times”. Karp was strong in stating that he cared about what employees and investors have been through in regards to the stock price, but he pointed the focus towards the 5 year vision for Palantir, asking “where is the company going to be in 5 years?”
In regards to bad times, Karp has reiterated the idea that Palantir is built for these difficult circumstances, and therefore hinting at the company thriving within the next few years. Interestingly, Alex pointed towards the competitors of Palantir & mentioned how these companies have been subject to “loose venture dollars”, and these companies will be “cut-off” within the next few months.
Interestingly, despite Cathie Wood selling Palantir stock last year, she did stated how “during tough times, innovation gains traction”. Palantir may provide ample evidence of this thesis, especially in consideration of their relationships with the West, and Palantir’s notion of protecting the West against Russia & China.
COVID was a great example of a catalyst for Palantir, as Piper Sadler recently pointed out: “COVID was a major catalyst for Palantir, and this is going to have long-term benefits. Piper Sandler however state that, due to the COVID catalyst, this has majorly benefitted Palantir across the Government. This perhaps relates to Palantir’s stickiness as a software solution.”
Piper Sandler states how, “key government agencies, such as the CDC, NIH, FDA, and Air Force, as agencies rapidly adopted technology to track cases and resources during the pandemic. These initial use-cases likely acted as a catalyst for further adoption; for example, Air Force expanded its contract to include broader operations efforts.”
Interestingly, once Palantir does integrate themselves within organisations, it can become very difficult to remove the software solution solution based on monetary and non-monetary switching costs. Piper Sandler successfully demonstrates the utility of Palantir’s software solution, and the fact that Palantir has a sticky product offering. “PLTR has maintained long-lasting relationships with government customers. PLTR has maintained relationships and contracts with the Army, Navy, U.S. Special Operations Command, CDC, ICE, and FBI for at least 10 consecutive years each. We believe these long-lasting partnerships demonstrate both the usefulness of PLTR’s platform and high switching costs once embedded.”
Alex wants to ensure that the best talent stays with the company, and does not join these failing start-ups in which are looking to built a consumer facing product in which “does no good”, he said. Furthermore, the necessity of talent was upheld as a key point of focus, in comparison to looking at the stock price.
Morgan Stanley analysts within recent times stated that Palantir is a consulting firm, in comparison to a software business. When asked about this evaluation of Palantir by the analysts on Wall Street, Alex said “I know what they are going to say in two years”, overall indicating the optimism in regards to the long term vision of Palantir. In two year, Karp believes that the analysts will recognise that Palantir focused solely on their high quality revenue, 60% of which comes from the Government – “in which is not going to go away”, as well as the fact that Palantir has created five of the most important products for society to date.
Karp said how these analysts will be writing about Apollo, Palantir Edge AI, and the fact that Palantir’s revenues have increased majorly.
To finalise, Alex stated that these analysts are idiotic when writing about Palantir being a consultancy company, in comparison to a software provider.
“When we built a product, we built it and then iterate to the point of productivity”, Karp finalised.
Morgan Stanley Research Report:
Back last year, Morgan Stanley analysts stated that “Palantir is priced for perfection, but key debates remained unresolved”. The analysts go on to mention how, “we saw a unique combination of revenue growth acceleration and rapid margin expansion undervalued by the market due to outstanding investor debates, most notably around whether Palantir was a true software company, or a less desirable consulting firm”.
When the report was released, the analysts at Morgan Stanley stated how, there are still “investor questions [which] remain largely unanswered”.
The analysts stated how, Palantir experiences an unattractive risk & reward, especially at a valuation of 33X CY22E sales.
The analysts at Morgan Stanley stated that for their thesis, “Palantir’s platforms unlock the value hidden in siloed data from disparate legacy systems, creating an opportunity measured over $100B.” The analysts went on further to state that, “the near-term opportunity is likely limited to the largest governments and enterprises”.
Furthermore, within a recent analyst report by Morgan Stanley, the firm wrote how “investor debate is likely focused on the durability of that growth given the heavy contribution from customers where the company made strategic investments.” Overall, these analysts were sceptical of the investments within early stage SPACs, and small start-ups.
The view of the retail investors is highlighted below:
Retail investors within the software company state how, Palantir, since inception, have battle-tested their software within the context of intelligence agencies, and the Governmental sphere. We believe that this initiative was paramount for the success, and viability of Palantir’s’ current products. This is because, throughout the Government sphere, Palantir over an 18 year period were trailing, testing, and adapting their software within some of the harshest conditions possible.
To add, these bullish retail investors believe that the philosophy of SPAC initiatives is very similar, if not identical. This is because, through the SPAC initiatives, we believe that this is a methodological approach for Palantir to test, trial and adapt their software to the needs of smaller companies, and early stage start-ups. This will enable Palantir to gain insights into the needs and necessities of small start-ups, and the ability to identify innate weaknesses and strengths of their current software’s. Overall, retail investors believe that this unconventional approach to business is reinforcing the ideological view of Palantir – namely their anchoring towards a 10+ year vision. Whilst Palantir currently does not have any viable competitors within the OS scene, recent commentary has suggested that there is much concern over big-technology giants, such as Google, eventually competing within the OS space against Palantir.
Interestingly, Morgan Stanley seem to have become more bullish over time in regards to Palantir and their software solution.
The analysts stated how, within recent times Palantir has shown more progress within the context of 1) sales force hiring, 2) increasing modularisation for new customers, 3) acceleration of customer additions, and 4) progress in terms of partnerships with other companies – namely DataRobot & Accenture.
Alex Karp On Government Revenue:
In two year, Karp believes that the analysts will recognise that Palantir focused solely on their high quality revenue, 60% of which comes from the Government – “in which is not going to go away”, as well as the fact that Palantir has created five of the most important products for society to date.
Interestingly, this should be vital for Palantir investors to take into consideration, especially when looking at the fact that analysts have stated within recent times that Palantir will fail within the Governmental space.
Palantir has experienced steep slowdown within the Government sphere in FY21, & bullish investors believe that this is based on the following reasons: namely, the delay within the federal budget this year and the innate slowness associated with Government allocation of capital. To explain further, the Senate have now passed a massive omnibus spending bill to fund the federal Government for the rest of FY22. This included a $728.5B in discretionary spending for defence related spending activities, which is 5% more than the funding in 2021. This vote within the Senate comes after months of delaying, disagreements, and debates – which is one of the longer periods in recent times.
Congress were operating under a CR, or continuing resolution, as a temporary measure to fund Government activities for a limited amount of time. This posed the Chiefs of the Air Force and Space Force to disclose their frustration and devastation for the matter, in relation to the inability to perform missions and to grow new capabilities. Overall, and per the words of CEO Alex Karp, it seems evident to assume that this delay within spending, due to the innate bureaucratic nature of Governments has resulted in a major delay within spending and contract allocation. This interestingly does highlight a vital area of weakness for Palantir, specifically because the company is reliant on 50% of their overall revenue from Governments.
The alternative side of the argument is a far more pessimistic take on Palantir’s business model. Namely the alternative side of the debate suggests that the Government procurement process is becoming more complex due to the increasingly competitive landscape. Palantir used to win sole-sourced-contracts, however due to competition, this has changed. To finalise, there is speculation upon smaller companies colliding together to win larger contracts, thereby taking a portion of the pie from Palantir.
This bearish argument seems very flawed, especially in consideration of the fact that Alex Karp has majorly reiterated the idea that the Government revenue is “not going away”.
Karp On Edge AI:
When asked about Wall Street & their coverage on Palantir, Dr Karp mentioned the fact that analysts in the future will be writing about Apollo, Palantir Edge AI, and the fact that Palantir’s revenues have increased majorly.
The following will explain Edge AI, and the utility of the solution in which Palantir is providing:
Society is moving into a new paradigm, namely the ideology of Industry 4.0. Industry 4.0 refers to the deployment of a large amount of sensors, and actuator devices forming an Industrial Internet Of Things.
The IoT speaks towards the extension of the application of internet communications beyond computers and networked devices, to also include the networking of everyday objects. In other words, a network of physical objects in the future will have embedded software, sensors and other technologies to connect and exchange data with other devices and systems over the internet.
In consideration of the huge amounts of inter-connectivity and data being collected by objects within the future, edge compute is required given the huge amounts of data produced by the IoT devices.
In accordance with an array of reports, the Edge AI Computing market is no trivial feat, and instead presents a $59.63B market size projection by 2030. This is mainly driven by the necessity to overcome cloud computing challenges based on the rise in demand for real time operations at the edge.
Both edge and cloud computing are meant to do the same thing – namely process data and run algorithms. However, the main difference between the two is where the actual computing takes place. Within the context of edge computing, information processing occurs on IoT devices that are on the field or in active deployment (at the edge).
However, within cloud computing, the same information processing occurs within a centralised location – for example a data centre.
Historically, cloud compute has dominated the IoT scene, because there are data centres that naturally have greater computing capabilities. Previously IoT devices on the edge could only transmit data.
Whilst cloud compute is still important, edge compute has become more popular due to an array of reasons:
- The reduced latency that is apparent.
- Reduced bandwidth requirements and therefore reduced costs
Other major benefits include, improved reliability, as well as enhanced security features.
Palantir is becoming the Operating System for Edge AI compute, allowing for AI driven decision making, model chaining across equipment & environments, continuous integration and delivery & more.
Edge AI seems to be a new innovative method in which many organisations will adopt within the future. Palantir seem to be taking the lead in regards to Edge AI & software needed to make this technology a reality.