Recently, it was revealed that Palantir Technologies (NYSE: PLTR) is taking its expertise in data analytics and AI expertise to outer space, after forming a strategic partnership with a company called Starlab Space. In addition to that, Argus Research released a new bullish note on PLTR stock, despite its controversial valuation that led one Wall Street analyst to say that it has a gluttonous valuation.
Palantir’s Partnership With Starlab
Palantir is apparently looking to conquer space, as it struck a deal with Starlab to become its exclusive supplier of enterprise-wide software data management solutions for its commercial space station. Starlab is backed by many big names. In fact, the company is a joint venture between Voyager Space, Airbus (OTCMKTS: EADSY), Mitsubishi (OTCMKTS: MTSUY), and MDA Space (OTCMKTS: MDALF).
This company is working to build and operate a commercial space station, with the goal of maintaining a human presence in low-Earth orbit and transition research and science from the International Space Station, operated by five separate government space agencies, to commercial space stations. Starlab’s space station is expected to get into orbit in 2028, just ahead of when the International Space Station is set to be decommissioned in 2030.
The joint venture said that Palantir’s technology will help identify potential issues and predict maintenance, prolonging the life of critical components. It also said that they will use Palantir’s data modeling through digital twins and AI technologies to enhance Starlab’s operations throughout the enterprise. Investors should keep in mind that this isn’t Palantir’s first contract involving outer space.
In fact, since 2021, the company has been working with the U.S. Space Force, a branch of the U.S. armed forces, by providing cloud and analytic services for the Warp Core project, and last year, the company extended three contracts with the Space Force and the U.S. Air Force worth a combined $110 million. We don’t know the terms of Palantir’s deal with Starlab, as they were not disclosed, but this partnership is yet another example of how the company’s technology is being selected when advanced mission-critical solutions are needed.
Does PLTR Stock Have a Gluttonous Valuation?
The AI rally is far from over, and this will greatly benefit PLTR stock. Not only that, but the company’s new deal is another example of its inroads into the commercial sector, which has seen strong growth recently. In fact, this segment had 27% revenue growth in Q1 to $299 million, with U.S. commercial growth of 40% to $150 million.
Palantir is seeing more types of industries adopt its analytical and AIP solutions, and this is evidenced by the 69% growth in U.S. commercial customers it saw in the quarter. To help draw in commercial customers, the company puts together boot camps to quickly teach them the skills they need to employ AIP and solve their own complex issues.
But even though the company’s commercial business is booming, we can’t say the same for its government business. Palantir’s government revenue growth has slowed, particularly with the U.S. government. In fact, government revenue grew 16% in Q1 to $335 million, with U.S. government growth of 12% to $257 million.
That growth isn’t bad, but for a company valued at a forward price-to-sales multiple of 21 times, overall revenue growth of 21% might not be enough for some to justify that valuation. This is why Monness, Crespi, Hardt & Co. analyst Brian White downgraded Palantir to Sell from Neutral, and issued a $20 price target.
Argus’ Take on PLTR Stock
Analyst Brian White thinks that PLTR stock is overvalued, but recently, independent research firm Argus Research gave PLTR stock a Buy rating along with a $29 price target, implying an upside of 21.6% from current trading levels.
The analyst behind the call, Joseph Bonner, points out that Palantir is on track to gain from the growing adoption of its AI software platform by commercial customers, which could help the company increase its earnings at an annual rate of 19% for the next five years.
PLTR Stock Forecast
PLTR stock is considered expensive for a reason, especially when you consider the fact that its price-to-sales ratio was 18 at the end of last year. Additionally, the company’s trailing price-to-earnings ratio is also quite rich at 208. Not only that, but Palantir’s expensive multiple means it is prone to volatility. For example, the stock crashed last month after the company’s Q1 earnings barely matched Wall Street’s expectations and its 2024 revenue guidance fell slightly short of consensus estimates.
However, Argus Research points out that Palantir is a highly differentiated company, and adds that its commercial business is going to be its next big catalyst. It’s no surprise that Argus Research is optimistic about Palantir’s commercial success, as market research firm IDC pointed out that Palantir was the top player in the global AI software platform market in terms of both revenue and market share.
To make this better, Gartner predicts that AI software spending could hit $298 billion in 2027, with government spending accounting for $70 billion after three years. Palantir’s strong reputation as a provider of software platforms to federal agencies will come in handy to help it tap this market. After all, Palantir gets 53% of its revenue from selling its software platforms to government agencies.
Therefore, there’s still a lot of room for Palantir’s government business to grow. But in addition to that, Palantir’s management pointed out on its last earnings call that the total contract value in the commercial segment shot up an impressive 187% year over year to $505 million.
What’s also worth noting is that Palantir finished Q1 with a total remaining deal value worth $4.1 billion, up 22% from the previous year. This is indicative of the healthy revenue pipeline the company is sitting on. Even better, the strength in Palantir’s deal activity is translating into solid growth in the company’s commercial customer base. Its commercial customer count in the U.S. jumped 69% year over year in Q1 to 262, while the overall commercial customer count increased 53% year over year to 427.
The company is also witnessing stronger deal activity, as it closed 87 deals worth $1 million or more in Q1 2024, up from 64 in the same period last year. All this clearly shows that commercial customers are warming up to Palantir’s software offerings, and the company’s government business is likely to gain more momentum as well thanks to recent developments.
As a result, there is a solid chance that Palantir’s growth in 2024 could be better than expectations and the lucrative AI-related opportunity could help it deliver healthy growth in the long run. For these reasons, PLTR stock could be a great stock for investors who want to invest in a good growth stock, as its growing revenue pipeline could help it justify its valuation.
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