Is Palantir Technologies The Next Nvidia? Complete Analysis

• 1 Palantir Technologies has shocked Wall Street with its latest earnings report.
• 2 Revenue forecasts based on quarterly reports and fundamental indicators give a glimpse of what might be in store for the tech company.
• 3 Palantir has made a turnaround with a positive net income for the first time.

Listed on the stock exchange just 3 years ago, Palantir Technologies (NYSE: PLTR) has had an impressive run so far. Amid the recent tech rally of the US stock markets and after one of the best earnings calls in the company’s history, the PLTR stock jumped more than 40%.

Financial experts are already comparing Palantir with Nvidia (NYSE: NVDA). Is Palantir on its way to becoming the next Nvidia – in terms of financial and technical growth? Here’s what we think.

Palantir’s Plan to Dominate the AI Market With Its Platforms

Investors must understand why Palantir’s Artificial Intelligence Platform (AIP) is a game changer to comprehend why the boot camps organized by the company are significant. Here’s a brief explainer on Palantir’s AI platforms.

Palantir’s AI Platforms: Gotham and Foundry 

Gotham and Foundry are both Palantir platforms that help institutions transform data into integrated assets. They help provide a consistent, real-time view of enterprise data to executives, engineers, sales teams, and human resources, enabling smooth data access to the entire organization.

They accomplish this by assisting companies in creating digital twins, also known as ‘ontologies’. Simply put, an ontology is a map of a company’s resources and how they relate to one another, sort of like an army unit or a military boot camp.

The U.S Army uses Palantir Gotham. An army unit is organized into a network of hundreds of personnel, assets, and other resources. There is 100% clarity about the hierarchy, objectives and relationships and every member is fully aware of individual and collective responsibilities. In December 2023, Palantir Technologies received a one-year extension of its contract with the U.S. Army for its data management program.

Organizing Palantir’s technology involves keeping track of everyone’s ranks and chain of command, identifying who is responsible for each computer, vehicle sensor, or weapon system, determining who can access specific information, and tracking everyone’s current orders and locations.

Managing sensitive data in a real-time scenario is challenging. That’s where ontologies come in handy, as they help organize the big picture for such large and complex enterprises.

Palantir’s platforms assist companies in building and utilizing these ontologies to analyze data, track resources, and streamline their operations. Gotham and Foundry can also directly connect to almost any company asset to receive status updates and even send back instructions, such as rerouting a vehicle or retasking a military unit. This shows that assisting third-party software in such sensitive data systems shows the trust of some of the world’s largest militaries and companies on the planet. 

Both Gotham and Foundry are complex products. Also, the learning curve for these products can be quite steep and will take up a lot of resources and time. This is where the AIP of Palantir Technologies comes into play.  

Palantir’s Artificial Intelligence Platform (AIP)

AIP enables users to interact directly with their company’s ontology through prompts. This means that instead of having to code or manually create different data sets and dashboards, users can interact with AIP in a way that is similar to how they would interact with a more advanced chatbot, like GPT or Google’s Gemini.

This approach significantly lowers the required skill level and allows users to get their work done quickly and accurately. AIP boot camps allow participants to engage in hands-on working sessions, where they can create practical solutions to their company’s issues within a week.

Experts and decision-makers attend these boot camps to collaborate directly with skilled engineers to develop their own high-quality AI tools and workflows using their company’s data – even if it is sensitive information.

During an interview with CNBC, Alex Karp, CEO of Palantir Technologies, highlighted the direct link between AIP boot camp and Palantir’s growth. He also said that it is growing so quickly that they might have to rebuild the whole company.

Fundamental Analysis of Palantir Technologies: Did It OutPerform Nvidia in 2023?

On New Year’s Eve, Palantir dropped one of the most impressive quarterly reports in its history. Palantir posted a positive net profit for the first time, attracting investors towards the PLTR stock.

Till the time of writing this piece, Palantir Technologies hasn’t officially released its annual report, however, a thorough analysis of the quarterly reports will show how well the company has performed on a fundamental basis. 

Major Sources of Revenue for Palantir Technologies

In the Q4 report, Palantir posted revenue of $68 Million, which shows a growth of 20% year over year (YoY). Their customer count showed a growth of a whopping 55%, while their commercial revenue showed a growth of 70% year over year (YoY). 

However, the growth from the US government segment was just 6% YoY. The slow growth from the government is somewhat concerning for the company, but the growth in the commercial revenue shows that Palantir is ready for more competitive markets around the world.

Palantir Technologies: Balance Sheet Analysis

The 2023 balance sheet of Palantir Technologies is the strongest it has ever been. The company’s assets have grown by more than 30% YoY.

Notably, the cash and cash equivalents section shows that the company’s true cash (Cash and equivalents + short-term investments) is growing consistently despite the negative net income. The latest balance sheet, this figure is $3.67 Billion which is up 38% as compared to the last year. The cash ratio, which measures the company’s true cash against its current liabilities is 1.72. This is a strong number and it demonstrates the company’s rich cash availability.

The long-term assets show that the company has frequently liquidated its long-term investments. $296 Million worth of investments were used up when Palantir was net negative in the income statement. Moreover being in the tech industry, which is a low Capex industry, the company’s PPE upon Sales ratio is 0.1031 which is optimum and close to the peers.

Moreover, one of the important ratios to measure the company’s debt and its long-term impact is net debt (True debt- true cash) which is a negative of $3.44 Billion. This shows that in theory, the company has no debt as it has excess cash equivalent of $3.4 Billion.

The asset turnover ratio is 0.56, which shows that it is generating $0.56 for every $1 worth of assets. This is because the companies in the tech industry don’t make tangible use of their assets. For instance, Nvidia’s asset turnover ratio is 0.95. 

Palantir Technologies: Income Statement Analysis

Revenue grew 16%, which was very close to the street expectations. On the contrary, the focus was on the operating income as the company had been focused on growth before this year which resulted in a negative operating income. The major eye-catching metric here was the Selling and general expenses which stayed almost the same compared to the last year. 

This indicates that the operating efficiency has increased. A more deep dive into the statements shows that the company has done some cost-cutting as well. With a net income margin of 15%, the return on equity has risen to 6.95% which is still very low when compared to Nvidia’s whopping 69.1%.

On the other hand, Palantir Technologies has surpassed Nvidia when returning the invested Capital in the business. Palantir has returned 82% while Nvidia has made it up to only 50.6% making Palantir a more capital-efficient company when compared to the two.

Palantir Technologies: Cash Flow Statement Analysis

There is a good old saying that goes like “Cash is king” However when it comes to business, it changes to “Cash flow is king”. It looks like Palantir Technologies knows this phrase very well. 

Despite being net negative all these years, the company has maintained a positive cash flow from operations since 2021. The major producers of cash were the add-backs of noncash items. 

The Cash flow operations to sales ratio for the current year is 0.31 which indicates that 31% of the total revenue was converted into cash flow from operations. The company hasn’t been very active in its stock buybacks in recent years, however, if the profitability continues in the future, it is very much expected from the company as buying back shares increases the return on equity.

The free cash flow of the company has also been positive since the end of fiscal 2021. Currently, it is at $697 Million which is 1.29% of its market cap. This is an important metric which shows the company’s ability to pay dividends, buy back stock, and even pay debt. When compared with Nvidia’s 39.6% this figure is relatively low.

Forecasting the Upcoming Earnings of Palantir Technologies 

Quarter name	Revenue	Revenue Growth	EPS in $	EPS Growth
Q3 2022	$478		-$0.06
Q4 2022	$509	6.43%	$0.02	-133.33%
Q1 2023	$525	3.26%	$0.01	-50.00%
Q2 2023	$533	1.55%	$0.01	0.00%
Q3 2023	$558	4.66%	$0.03	200.00%
Q4 2023	$608	8.99%	$0.04	33.33%
Forecast Q1 2024	$627	3.13%	$0.05	31.67%

Forecast Method: Mean of Linear Regression and Average Growth

According to the forecast, in the first quarter of FY 2024, Palantir Technologies could record a revenue growth of 3.13% while the EPS is expected to grow at 31.6%.

Conclusion: Is Palantir Technologies The Next Nvidia?

Fundamental analysis shows that Palantir has made a major turnaround. Its Artificial Intelligence Platform is expected to boost revenue, making the tech company a fairly reliable investment. At press time, the price-to-earnings ratio was over 200. 

The US tech sector has been widely labelled as overvalued, thus, investors should wait for a moderate correction in the P.E. from either side before investing. The balance sheet of the company is strong with plenty of cash waiting to be burnt. On a longer horizon, Palantir Technologies is worth the investment.