Alex Karp Was Right. But Is it Too Late to Buy Palantir Stock or Does a Big Breakout Loom?
Palantir's Q2 delivered 93% revenue growth and a 155% rule-of-40 score, combining hyper-growth with profitability unheard of in enterprise software.
U.S. commercial revenue surged 149% as Karp argues America's lighter regulatory touch gives it a decisive AI advantage over Europe.
Palantir's 30% post-earnings pop may already price in its first-mover edge, which could erode faster than bulls expect as rivals catch up.
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After a "spit your dentures out" kind of quarter for Palantir (NASDAQ:PLTR), maybe, just maybe, CEO Alex Karp was right all along about the company being in a league of its own, or being in an "N of one," as he put it. Undoubtedly, expectations were high going into that second quarter, but, somehow, the company managed to post even higher revenue growth, catching just about everyone, including the bulls, off guard.
It's easy to dismiss Mr. Karp's heated rants during televised interviews, but this latest quarter was a statement, and I do think the man will be finding himself dancing as Dr. Michael Burry, who remains short the stock, starts to feel a bit of pressure. Thankfully for Burry's sake, he halved his short position more than a month before the jaw-dropping Q2.
But, either way, Palantir is back in the conversation as the firm looks to go above and beyond the "rule of 40," with a stunning 93% revenue growth surge alongside a 62% adjusted operating margin (155%, which is absolutely ridiculous). It's not just the hyper-growth that's beyond absurd, but the profitability. It really is unheard of in the world of software. And, for now, the N remains one. For how long, though?
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That's the trillion-dollar question. With the U.S. commercial business posting a 149% revenue surge, it's clear that Mr. Karp has a point when he compares the state of AI in America versus Europe, which may have overregulated itself out of the game.
The big question is what could happen to Palantir's commercial growth once ex-America catches on. One has to think that Europe might consider pulling back on regulatory hurdles to remove some of the friction and reduce the risk of regulating itself "out of business," as Mr. Karp put it,
Either way, it's full speed ahead for the U.S. commercial business as the AI Platform (AIP) bootcamp finally starts to pay big dividends. Just where growth will go in the coming quarters, though, remains a question mark. Palantir's unprecedented earnings growth may very well justify its seemingly outrageous price of admission, especially if Mr. Karp and company can keep raising the bar as they've been doing.
Either way, Palantir is leveraging AI to help firms make real, informed decisions to save big money and drive serious value. If anything, Palantir has shown what AI is really capable of in the right hands. In many ways, it's a proof of concept for enterprise AI, and the obscene profitability growth suggests that the AI technology itself is not in a 2000-esque bubble.
But that's not to say Palantir stock can't go bust, especially if competition gets that wake-up call. As most other firms experiment, Palantir is already ready to accelerate down that parabolic growth curve. And it seems to be leaving everyone else in the dust.
As the company continues investing in its bootcamps, I do think that there's more explosive growth to be had as corporate America looks to discover the value that Palantir's platform can provide.
If it can keep providing value, perhaps the company can continue to win a lion's share of the early profits as AI looks to live up to its monetization potential. Arguably, the company has demonstrated that there's no shortage of money to be made by using AI to make decisions and drive significant business value.
As far-fetched as some of Mr. Karp's comments have been, he does make a strong case on many fronts. But, of course, the big question that matters most is how long Palantir will stay that N of one.
In due time, rivals are sure to rise up as we move beyond frontier lab models towards ontology and AI ROIs, and that N of one Palantir finds itself in could soon become an N of a handful. When that happens, it's hard to project how much sales and margins stand to fall.
Of course, time will tell how long Palantir's headstart lasts, but, in my view, the secret is out: it's time to build AI on top of ground truth in an era where hallucinations and rushed buggy model releases raise questions about where this is all going.
The latest Q2 results seem to show that Mr. Karp has been playing chess while much of enterprise software is still playing checkers. But my fear is what happens when the rest of corporate America wakes up and pursues the same pathway that Palantir raced down in these earlier days of the AI boom.
Sure, there are outsized rewards to the AI software companies with that first-mover advantage, but it's because the rewards are so great that it might cause the advantage to fade sooner than most bulls expect. So, while Mr. Karp has been mostly right thus far, I certainly wouldn't chase the stock after that 30% pop.
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