Latest Results Show the Palantir Hype Is Over and the Real Work Starts Now

Palantir Technologies (NYSE:PLTR) stock looks set to continue its gains as Thursday’s pre-market trading takes off. PLTR stock rose more than 30% after delivering its first quarter earnings report on May 8.

It’s always a good idea to wait for the dust to settle before trading a stock around earnings, but Fintel’s tracking of Pre and Post Earnings Drift shows the shares gained as much as 27.6% in the three days after the Q4 2022 report on Feb. 13.

For now, shareholders (who are also likely bag holders) have reason for optimism.

Everything’s AI

The highlight of the report was the success of its recently launched Artificial Intelligence Platform (AIP). That was a significant factor in Palantir’s reporting its second-consecutive quarter of GAAP profitability. And it’s the reason why the company guides that it will continue to be profitable for the remaining three quarters of 2023.

But now the real work begins. Palantir is not a young start-up company. It’s been in business for more than 20 years. Prior to last quarter, however, the next profitable quarter the company delivered would be its first.

That may be changing. But that’s the reason behind the headline, because now Palantir has to show that the company has really turned the corner.

Will Actions Match Words?

Palantir CEO Alex Karp does not lack confidence. In the company’s most recent earnings report, Karp said that the depth of engagement with and demand for the company’s new AIP was “without precedent.”

Palantir’s AIP uses a large language model (LLM) similar to ChatGPT. In describing the speed at which the company launched its platform, Karp noted that Palantir has experience with integrating security measures and proprietary knowledge with external large language models and generative AI.

“What’s most exciting about Palantir is we have our ability to launch products that are literally the only products on the market and that will, in fact, change your life and will determine who succeeds and who fails across enterprise, both government and commercial,” he added.

If you’re inclined to dismiss this as just hype, take note that Forrester, a renowned research and advisory firm, named Palantir as a leader in artificial intelligence and machine learning (AI/ML) software platforms.

Buy Results, Not Hype

Of course, PLTR stock investors have heard words like this from Karp before. In fact, when I hear Karp talk, it frequently reminds me of another CEO who doesn’t lack confidence and is also polarizing to investors.

Some investors bought PLTR stock for just that kind of bravado. As an avid sports fan, I understand how easy it is to form an opinion about a player or coach based on some great sound bites they deliver to the media. I also know that many of those athletes and coaches don’t deliver results that match their words.

That’s why it’s important to note that many institutional investors have been critical of Palantir.

Some of that is because the company’s business model includes the practice of rewarding executives with stock-based compensation. That’s not unique to Palantir, but it was tough for investors to swallow when the company was not profitable.

And even after the earnings report, two analysts give Palantir a ’sell’ rating. Perhaps they are still concerned about Palantir’s reliance on government contracts. About 60% of the company’s revenue comes from the public sector.

In fairness, the company has significantly increased the amount of revenue it generates from its commercial business. However, if investors are looking to be critical about anything it’s that growth on the commercial side is slowing.

PLTR Stock Playbook

In the past, Palantir’s lack of profitability put me squarely on the fence about buying PLTR stock. It felt similar to buying stock in an electric vehicle company that had yet to produce a car.

Today, I’m cautiously optimistic, but I have macroeconomic reasons. The market is stuck in a range and some analysts anticipate there will be another leg down.

And then there are company-specific concerns. Will the company’s revenue take a hit from a new federal budget? Will the slowdown on the commercial side continue?

Unlike Karp, who would undoubtedly brush aside my concerns, I can’t. But trading for right around $10 a share, it’s a very tempting buy. If you don’t have a position, it’s at an ideal price to take small bites until PLTR stock gives you a firm confirmation. With short interest sitting at around 7%, there’s no immediate concern of a short squeeze to give you FOMO.

This article originally appeared on Fintel

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