The past couple of years have been boom or bust for investors in Palantir Technologies (PLTR 4.78%). After plunging as much as 64% last year, the stock has done an abrupt about-face in 2023, soaring 166% -- and the year is far from over.
Even as the company suffered weakening demand in the face of economic headwinds, Palantir wasn't content to wait for the weather to clear. Management diligently sought to expand its addressable market, develop new solutions, and prepare for the inevitable rebound to come.
Yet, it's Palantir's long track record and intriguing history that may provide clues regarding its future potential. Here are a few things about Palantir Technologies the smartest investors know.
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1. Silicon Valley royalty
Palantir Technologies co-founder Peter Thiel may not be a household name, but he's something of a legend in Silicon Valley.
In 1996, the billionaire and philanthropist started his own hedge fund -- Thiel Capital Management. Just two years later, Thiel was one of several entrepreneurs that pioneered a novel money transfer service, initially dubbed Confinity. The start-up that would eventually come to be known as PayPal (PYPL +0.76%), an original and arguably one of the most successful fintech companies in the world.
Thiel was also the first outside investor in fledgling social media company Facebook (now Meta Platforms). Thiel's keen eye for spotting breakout opportunities helped him parlay a $500,000 initial investment in Facebook into more than $1 billion. Thiel is also credited as an early investor in LinkedIn -- which was eventually acquired by Microsoft -- and online directory and review app Yelp, among dozens of others.
Thiel's venture capital firm Founders Fund also has sizable stakes in Stripe, SpaceX, and Instacart, which are viewed as some of the world's most valuable start-ups.
2. A way to track terrorists
In the wake of the terrorist attacks of 9/11, it became abundantly clear that U.S. intelligence agencies had no way to share and analyze data stored in antiquated systems across dozens of agencies. Thiel envisioned a solution that would gather the siloed data into one place and analyze the information with the help of cutting-edge AI algorithms.
On their own, a one-way plane ticket, large cash withdrawals from a foreign bank account, and a rented truck might not raise any red flags, but taken together might be enough to start an investigation that could thwart a potential terrorist attack. That concept eventually evolved into Palantir Technologies.
The company derives its name from palantiri, mystical spheres from the mind of Lord of the Rings author J.R.R. Tolkien, which allowed a user to see across time and great distances.
NASDAQ: PLTR
Key Data Points
3. Its clients include a long list of three-letter government agencies
One of Palatir's early investors was In-Q-Tel, the venture capital fund of the CIA. However, that's just the beginning of a laundry list of government agencies that have availed themselves of Palantir's services.
This includes the Federal Bureau of Investigation (FBI), the National Security Agency (NSA), the Department of Defense (DoD), the Centers for Disease Control (CDC), the Department of Health and Human Service (HHS), the Food and Drug Administration (FDA), and more. Palantir also helped health professionals across the world track the spread of COVID-19 during the pandemic.
Putting it all together
While Palantir got its start as a tool to track down terrorists, the company has evolved. In addition to its government clients, the company provides similar data mining and analysis services for enterprise-level businesses with mounds of data or information strung across private and public clouds or trapped in legacy systems.
Recent advances in the field of artificial intelligence, specifically generative AI, have resulted in a high-profile stampede to adopt AI technology -- which is right in Palantir's wheelhouse. The company quickly introduced its Artificial Intelligence Platform (AIP), which is seeing brisk adoption.
CEO Alex Karp noted in the company's shareholder letter, "The demand for AIP is unlike anything we have seen in the past twenty years." He pointed out that more than 100 organizations are already using the technology, and Palantir is in discussions with more than 300 others. Furthermore, AIP, which layers generative AI atop existing systems to analyze privately held data, is available to both government and enterprise customers.
Investors were disappointed that Palantir's second-quarter results weren't more robust, leading to a sell-off -- but there was plenty of good news. The company reported its third successive quarter of profitability, raised its full-year guidance, and announced a $1 billion stock buyback.
Palantir has a long track record of success, and demand for AI is just getting started. Investors with the intention to hold for the next five to 10 years should buy Palantir now, before Wall Street comes to its senses.
