Palantir Q4 Earnings: Public Sector Revenue Streams Drive Strong Tailwinds NYSE PLTR

Palantir Technologies Inc. has had a strong 2023, but its involvement in battlefield AI could lead to exclusion from investment funds.

Palantir Technologies Inc. (NYSE:PLTR) has had a strong year in 2023, with AI being a dominant theme for investment preferences. The company's latest earnings release indicates several positives, including the stabilization of revenue/gross ratio and cost of revenue over the past three fiscal years. However, operating expenses outside of stock-based compensation have been growing rapidly.

Despite the high rates of stock-based compensation in the past, they have been easing off, which may have helped shore up profits in the recent fiscal year. The core of AI is the algorithm, making Palantir's business model more akin to banks and management consulting firms. The company is well-suited for intelligence gathering and analysis, particularly for government agencies.

The company's revenue from top customers continues to grow, indicating a deepening of engagement and a bias towards future revenues from legacy clients. While the company has been attracting commercial clients and banking higher billings, the public sector remains a significant part of its overall revenue picture.

The AI solutions market will be marked with high adhesion, and Palantir is likely to have a ready pipeline of government projects due to its lineage. However, the ongoing "AI race" presents a buyer's market in the private sector as more companies get involved in AI solutions.

Palantir's involvement in U.S.-centric geopolitics, both off and on the battlefield, has raised concerns about the company's products being considered the equivalent of a weapon. If such AI is considered a weapon, the company might be added to exclusionary lists used during the construction of investment vehicles, significantly shrinking its accessible investor pool.

Despite these concerns, the company has an adhesive pipeline of clients in both public and private sectors, with reported success in delivering effective battlefield solutions. Whether it can maintain a similar degree of success in the private sector remains to be seen as the AI race heats up.

Overall, fiscal trends indicate that Palantir Technologies Inc. is sailing on tailwinds, making it a straightforward yet conditional recommendation. However, the debate on whether the company's products' effects in battlefield environments should lead to its exclusion from certain funds in the future is likely to continue.

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