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Palantir Government: It's Now or Never
When your offering perfectly matches the demand you have a unique opportunity
Some situations are special and present a unique opportunity.
When your offering perfectly matches the demand, you have a rare chance, which as a business you can’t fail in capturing.
I believe this is the case for Palantir’s Government business.
War is bad, but not for all
Currently, the geopolitical scenario is under pressure:
Russia is escalating its “special mission” on Ukraine;
China is increasing pressure on Taiwan.
However, from the standpoint of a Defense Contractor, that is all but bad news.
Almost 80% of the US Palantir’s Government business, which represents ~75% of the total Government Revenues, comes from the Department of Defense.
Palantir’s Government business is essentially “military software as a service”.
Transforming disaster into Revenues
Palantir empowers soldiers in making data-informed decisions.
There is no better way for a Defense contractor to show the validity of its offering than in real scenarios.
It is premature to have precise numbers of how much the Government business could keep growing, but I am confident that it should return to its ~30-/35% CAGR if the TITAN contract is achieved and Palantir is able to capture the coming increase in defense spending from the US and NATO countries.
A positive sign comes from the increase in Government clients as of Q2.
In 22Q2 Palantir gained 8 new Government clients breaking the stagnant trend.
I expect to see further development in Q3.
As shown in the previous article (PLTR Gov. Slowdown: Not PLTR’s Fault Only), DoD and NATO are increasing their defense budgets substantially in the coming years.
In theory, countries should invest high enough in defense to prevent any attack. But in reality, we see the increase in spending as a result of increased tensions.
You could clearly see how military expenditure increased in all regions after 9/11 in 2001.
The increase in military spending translated into a substantial increase in Revenues for the prime contractors.
For instance, Lockheed Martin’s Revenues doubled from ~$25bn in 2001 to almost $50bn in 2012.
A wildfire triggers an increase in spending now and for the coming years to keep the situation monitored.
The increase in spending on defense as a result of war and geopolitical tensions automatically expands Palantir’s Total Addressable Market (“TAM”). At the time of the Direct Listing in late 2020, the S-1 filing indicated that Palantir’s Government TAM was ~$63bn, of which $26bn from the US.
Palantir in Ukraine
We know Palantir is playing a crucial role in the Ukraine-Russia war.
Palantir, for instance, has been used to help manage Ukrainian refugees:
Palantir’s Metaconstellation is used to receive precious almost real-time information from satellites, for instance, to track Russian tanks and artilleries.
The involvement of Palantir has become official when Karp visited Zelensky, Ukraine's President. Karp was the first CEO to visit Zelensky in person.
@KrisPatel99 found evidence supporting the fact Ukraine is actively using Palantir, in particular, by the Head of the National Security Council.
Neighbors need to pay attention
Aggression in a country automatically triggers the alarm of its neighbors. However, geopolitical tensions don’t only involve a narrow area.
Once a wildfire happens, the nearby area should also be closely monitored.
We have hints from Karp meeting the Lithuanian President.
On the Taiwan side, China’s potential aggression put pressure on Japan, Australia, and South Korea to increase defense spending to monitor the situation and be ready.
In this regard, Karp met Japan’s former Prime Minister Shinzo Abe, who had a strong position against China invading Taiwan. Unfortunately, Shinzo Abe has been dramatically assassinated a month later while giving a speech.
How can Palantir effectively help?
This video is worth more than 1.000 words:
Price follows fundamentals
As an emerging Defense contractor, Palantir has an incredible opportunity to prove that its solution can help save lives and win a conflict. This should reinforce the existing relationships with the Department of Defense and set the basis to collect further contracts in the coming years.
This does not mean that the stock price can’t drop further. In the short term, the market is moved by emotions and narratives, which are both very negative right now. However, if Palantir captures the window and performs well in terms of the underlying business, the stock price will follow.
In the coming quarters, we will properly judge if the “Government Slowdown” narrative is real or just the beginning of a new cycle.
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View expresses are my own. Do not represent Financial Advice.
I own (many) PLTR 0.00%↑ stocks.