Palantir: Bottoming On Unprecedented Demand

Key Points

• Palantir results sparked a double-digit pop in share prices that may not last. 
• Most analysts like what they see, but there is an air of caution within the group that could cap gains. 
• A break above key levels is needed for a sustainable rally to form. 

Palantir NYSE: PLTR shares rocketed higher for various reasons that add up to 1 thing: positive GAAP cash flow and the expectations for positive cash flow to continue through the end of the year. This news is unsurprising, given the company’s position as a cloud-based cyber-security data-management firm, but the 25% pop in share prices was. Based on the results from Microsoft NASDAQ: MSFT, Datadog NASDAQ: DDOG and others in the cloud industry, this is good news for Palantir and the group, which has been beaten down over the past year. The takeaway is that Palantir stock is bottoming, and the analysts’ all-seeing eye forecasts higher share prices are ahead. 

Palantir Results Driven By AI 

Palantir results are positive on all counts. The company reported $525.19 million in revenue to beat the Marketbeat.com consensus by nearly 400 basis points. The gain was driven by strength in all categories, led by strength in the US. US sales grew by 23% compared to lower rates globally, with Government spending up 20% (22% in the US) and Consumer up 15% (26% in the US). 

“The depth of engagement with and demand for our new Artificial Intelligence Platform (AIP) is without precedent,” wrote Alexander C. Karp, co-founder and CEO of Palantir Technologies Inc.

The margin news is what got the market moving so sharply. The company reported its 2nd consecutive quarter of positive GAAP net income and the 1st quarter of positive GAAP operating income and is forecasting profitability through the end of the year. This results in an adjusted operating margin of 24% and a 36% increase in cash from ops and free cash flow. 

Looking forward, the company expects Q2 to be a little soft relative to the analyst expectations but for momentum to build through the end of the year. The FY revenue target brackets the consensus figure with the midpoint above the analysts' target. Because the customer count grew by 41% YOY and 7% sequentially to outpace revenue growth by a wide margin, there is a chance guidance is cautious. Accelerated adoption of AI-powered cloud services and security features coupled with deepening penetration of services could be the ticket to outperformance. 

The Analysts' Response Is Mixed 

The analysts are generally optimistic about Palantir’s Q1 results and guidance, but there is a note of caution within the group. At least 2 firms with Sell or Underperform ratings have commented that the results are not all that impressive, and range-bound conditions are likely to continue. That is offset by upbeat commentary from Bank Of America, which has a Buy rating and price target of $13, and 2 price target increases from Jeffries and Deutsche Bank. The takeaway is that Palantir is rated a firm Hold, which has held steady over the past year, and the consensus price target, now below the price action, is still trending lower compared to last year, although that trend may be ending. 

Palantir stock is trading at a critical level that may cap gains. That level is the low set on the opening day of trains near $8.90. Until the market moves above that level, there is a risk that range-bound conditions will persist at the current lows. However, the Q2 results may drive a shift in conviction for this market and get the price back above that critical level. In that scenario, a sustainable rally may form.