Transcription
I was wrong about Palantir. Palantir is becoming one of the most powerful AI companies in the world because they have some of the most powerful AI platforms in the world. With Palantir stock jumping up by over 40% after one of the best earnings calls in the company's history, there's only one question left to ask: is this the top for Palantir, or are their best days still to come?
Your time is valuable, so let's get right into it. First things first, I'm not here to waste your time. Here's everything I'm going to talk about up front: what I got wrong in my previous Palantir video, why Palantir's 2023 earnings matter and what they mean going forward, and of course, my updated long-term outlook on Palantir stock based on everything I've learned.
All right, let's start with my previous Palantir video. The only way to grow as an investor is to put your ego aside, admit when you're wrong, and learn from your mistakes. So I took all of last week off and reviewed everything I've learned about Palantir since they went public a little over three years ago. It turns out that I did make a pretty big mistake—I've been underestimating Palantir's AIP boot camps in a big way, both as a marketing strategy and as a way to build out more use cases for all of their AI platforms.
Palantir started running these boot camps long after my time using Foundry, and out of the 16 videos I've made on Palantir so far, I've talked about them exactly zero times. So I did a lot of digging, and it turns out that these boot camps are the answer to basically every concern that I shared in my previous Palantir video, from their go-to-market strategy to their commercial business growth.
During that earnings call, you said, "We have no pricing strategy." Have you made any progress on pricing strategy since then? No. This probably even affects their long-term net dollar retention rate, which I'll talk about more when I cover their earnings. So I was wrong. I missed the big picture on AIP boot camps, and they really do change my mind about Palantir's position in this new AI landscape. I'm making this video to make up for my mistake.
To understand why these boot camps are such a big deal, investors need to understand why AIP is such a game changer in the first place. To understand that, we need to talk about Palantir’s other platforms first. Don't worry; I'll keep it short and sweet.
Palantir Gotham and Foundry platforms enable data science across an entire organization by giving everyone—from executives and engineers to sales teams and human resources—a consistent real-time view of all of their enterprise data. They do that by helping companies create digital twins, which are also called ontologies. At a high level, an ontology is a map of a company's resources and how they all relate.
For example, an Army regiment is an interconnected network of hundreds of personnel, assets, facilities, and objectives, and their relationships would include everyone's ranks and chain of command, who is responsible for every computer, vehicle, sensor, or weapon system, who has access to what information, everyone's current orders and locations, and so on. That's a lot of sensitive data to keep track of, especially since things are constantly changing in real time. So ontologies are a great way to organize the big picture of these kinds of large and complex enterprises, and Palantir's platforms help companies build and use these ontologies to do things like analyze data, track resources, and optimize their own operations.
Both Gotham and Foundry can also connect directly to almost any company asset to receive status updates and even send back instructions, like rerouting a vehicle or retasking a military unit. That's a huge level of access to give to any third-party software, which shows just how much some of the biggest governments, militaries, and companies on the planet trust Palantir's platforms with their most sensitive data.
The problem is that Gotham and Foundry are both pretty complicated products themselves, and in my experience, the learning curve can be really high. That's where AIP comes in. At a high level, AIP lets users interact directly with their company's ontology through prompts. So instead of coding or manually creating different data sets and dashboards, users interact with AIP kind of like how they would with a much more capable ChatGPT, interfacing with an ontology.
This way seriously lowers the skill level that's needed to get things done right and get them done fast. That's a lot of value, but it still leaves the huge challenge of getting all the right data together, building out your own ontology, and getting AIP up and running in the first place. That's exactly where Palantir's AIP boot camps come in.
AIP boot camps are hands-on working sessions where participants can build real solutions to their own company's problems in under a week. Experts and decision-makers go to these AIP boot camps to work directly with Palantir engineers and build out their own enterprise-grade AI tools and workflows using their own company's data, even if it contains sensitive information.
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All right, so experts and decision-makers go to these AIP boot camps to plug in their own data, intellectual property, and all, and use AIP to build out their own AI tools and workflows alongside Palantir engineers. This means they leave these boot camps with a series of use cases that are close to production-ready and enough hands-on experience to finish building and start implementing.
On top of that, Palantir partners can run their own boot camps, which only makes AIP’s adoption compound even faster. But the final nail in the coffin for my concerns was this quick clip from CNBC where Alex Karp highlighted the direct link between Palantir's explosive growth and their IP boot camps.
When asked how he sees large language models both working with and maybe even competing against Palantir, he said, "I mean, look, our product—I'm not here to push our product—but it’s growing so quickly that we're going to have to rebuild the whole company. The reason it's growing so quickly is that the beginning of the AI revolution was not large language models; it was in the military, and we learned a lot of lessons there that people are learning now."
For a business, a large language model looks a little bit like self-pleasuring. "If you want to move from self-pleasuring to transforming your business, you're going to have to learn how to manage that model and integrate it into the logic and knowledge of your enterprise. You won't be able to do that as well as you can do with Foundry."
He continued, "It appears that you may be on the trajectory to becoming part of the S&P 500. What does that mean to you?" Karp responded, "Well, look, we’ve been profitable now for quite a while. We are committed to being profitable. The problems that exist now on the battlefield, in the intellectual arena, and in US commercial especially are completely Palantir-shaped problems. It’s very important for our customers that we have shown the financial strength. We have significant profitability, billions of dollars in the bank, and growth would be nice too. But it’s a lot about saying, ‘Look, you’re going to rely on us. So if you’re relying on somebody, you’d like to know they’re strong, and we’re strong.’”
When he was asked about the business briefly, Karp said, “When we were talking about AI, you said at some point we’re just going to have to remake the entire business. What does that mean?” He replied, “Our go-to-market has to be different. We did hundreds of boot camps last year, compared to like 72 pilots the year before. It’s just a question of embracing the fact that the revolution is bigger than we are.”
Yep, there’s really nothing else to say except I was wrong. I’ll do better from now on, and I’m happy to be a Palantir shareholder. Speaking of which, I also really like how Alex Karp talked about needing to be financially strong—not just so Palantir can get included in the S&P 500, but so their customers know that they can count on Palantir being there for them over the long term.
Let's talk about Palantir's earnings next. Palantir posted record revenues of $68 million for the quarter, which is up 20% year-over-year. Their US commercial customer count grew by 55%, and their US commercial revenue grew by a whopping 70% year-over-year. That's a massive difference from the 33% commercial revenue growth that they reported just one quarter ago. That's also 11 times the revenue growth that Palantir saw from the US government, which grew just 6% year-over-year.
While I’m a little worried about the slow growth on the government side, I’m much more excited for Palantir's commercial revenue to finally be bigger than their government revenue in the first place. To me, that's a clear indicator that they really can scale in bigger and much more competitive markets, which is key to their overall growth in the long term.
Palantir closed 27% more US commercial deals than in the previous quarter, which is impressive, but that's actually more than double the 62 deals that they closed just two quarters ago. So this number is ramping up fast. I also think that three-year growth in US commercial customers is a great metric to track, and I hope that Palantir keeps highlighting this number for investors.
I expect this multiple to keep expanding for a while and then level off before shrinking as Palantir's commercial customer count starts getting up into the thousands, which I have no doubt will happen fairly quickly since they're going to be running hundreds of these AIP boot camps every year. Eventually, their existing customers will start running boot camps of their own. I hope that Palantir keeps reporting the numbers for these boot camps every quarter as well.
But this earnings report was not all sunshine and rainbows, and I still have some concerns that I shared in my previous Palantir videos. Net dollar retention is a measure of how much money recurring customers spend with a company year-over-year. It’s a way to measure how sticky your products and services are with your customers. This used to be a number that Palantir plastered all over multiple slides of their quarterly earnings presentations, even breaking it out by commercial versus government and US versus international.
Two years ago, their net dollar retention rate was 141% with the US government and 150% with US commercial businesses. That means Palantir customers were spending 41 to 50 cents more for every dollar they spent with Palantir the year before. Today, this number is one footnote in the appendix, and Palantir's net dollar retention rate was just 108%—no breakouts and no explanations. I hope that Palantir's net dollar retention rate will grow as they run more AIP boot camps, acquire more customers, and flush out their overall monetization strategy for AIP.
Have you made any progress on pricing strategy since that point? No. Either way, this is a number that all long-term investors should keep an eye on. Another thing that I've been keeping an eye on is their online marketing. I ended my previous Palantir video by saying that they should build a huge fictional data set that they can use for product demos and user training. Obviously, their AIP boot camps are already doing a great job of that, but I still think that building a data set that everyone can understand would give Palantir a way to showcase the power of their platforms to everyone else, even if they're non-technical.
Well, two weeks after my video, Palantir made a video showcasing how AI could help Santa plan the optimal path for delivering presents to children around the world and even decide which present to give each kid based on their age. But Santa's mission is time-sensitive, so before flying to a country, AIP can check the weather report and decide how to reroute him on the fly.
Just a few days before the Super Bowl, Palantir made another video showcasing how AIP could help a football coach turn the tide of a game by analyzing how different players move and where the ball is at any given time. They even built a full ontology to show the relationships between the different entities that make up a football game—all of the data, each entity, and how it maps back to the football game that's currently running in real time.
You can see there are a bunch of different data sources coming together in real time—similarly to how you have data spread across your enterprise. “I’ve got a bunch of different sources of data that represent what’s happening to a player that then we translate into what’s going on on the left—very cool.” Each one of these objects has a similar level of complexity but all come together now, talking in this business language. And then when the coach calls a play, he can see the new data get written just like how Palantir platforms can write data to other software and systems.
Like I mentioned earlier, they even showed off three different AI assistant coaches, each powered by a different large language model—like GPT-4 by OpenAI, Claude by Anthropic, and Google’s Gemini. All three AI coaches had access to the ontology and were tuned to recommend plays with different levels of risks and rewards, so the head coach can ask these AI assistants for recommendations and then weigh all the options.
Just to be clear, I'm not trying to take any credit for Palantir making these videos or imply that they made them because they saw my video. I'm just trying to point out that these videos do an amazing job highlighting the power of AIP in scenarios that everyone can understand, and it's great to see that Palantir finds that as important as I do. I'm still crossing my fingers that they make a giant ontology of the entire Star Wars universe to show off even more of their capabilities and how they all fit together.
Either way, it's clear that Palantir is firing on all cylinders. I know this video is a little long, but I wanted to be thorough because accountability is important. I overlooked something big about a company that I cover often, and the only way to grow as an investor is to put aside your ego, admit when you're wrong, and learn from your mistakes.
So with all that context, let's talk about my updated long-term outlook on Palantir stock next. If you feel I've earned it, consider hitting the like button and subscribing to the channel. That really helps me out, and it lets me know that accountability is important to you too. Thanks!
With that out of the way, here are my honest thoughts on Palantir stock. At the start of the year, I made a video about the stocks that I'm buying to get rich in this AI boom without getting lucky. Palantir made the list because it's a pure-play AI company that I've always loved for the long term, but I put it low on my list because of all the concerns that I previously talked about.
It’s clear to me now that Alex Karp isn’t just waiting for the world to discover how good Palantir platforms are; he’s focused on delivering value when and where his customers need it most. Palantir's platforms are still constantly evolving as a result, and Palantir is actively addressing a lot of my concerns around their commercial growth with AIP boot camps, as well as videos that use examples that everyone can understand, not just subject matter experts.
So with everything I've learned since I put out that video, I'm moving Palantir up two spots on my list, which is a pretty big move considering how confident I am in each of these companies to begin with and how well this list has performed so far. That's why it’s so important to understand the science behind the stocks. If you want to see why I picked these stocks, here's the video where I walk through it step by step.
Either way, thanks for watching, and until next time, this is ticker symbol U. My name is Alex, reminding you that the best investment you can make is in you.