With shares up by over 40% since Nov. 4, Palantir Technologies (PLTR 0.28%) has been a clear beneficiary of Donald Trump's victory in the 2024 presidential election. But is this rocket-ship rally backed by fundamentals? Let's dig deeper into how the next four years could play out for the data analytics company and its investors.
A leader in military and law enforcement analytics
Palantir Technologies helps the government and other clients with big data analytics, which involves analyzing massive volumes of information to discover patterns and actionable insights. It monetizes these services through a software-as-a-service (SaaS) business model, where the client gets continuous access to its platforms for a recurring fee.
The company emerged amid the U.S. war on terror in the 2000s, where it helped the government with highly sensitive missions such as the search for Osama bin Laden. Later, its law enforcement capabilities were employed by Immigration and Customs Enforcement (ICE) to help with profiling and deportations during the Trump administration.
Slate magazine suggests that Palantir's software works by crawling through government records (such as the DMV or child services) to discover potentially undocumented people before feeding the information to law enforcement. Palantir's incorporation of large language models (LLMs) could make its software even more powerful by enabling real-time insights to agents operating in the field.
Is Trump's election win really a game changer?
According to the U.S. Department of Homeland Security, 11 million undocumented migrants are living in the U.S. as of 2022. And like in 2016, immigration law enforcement was a big part of Donald Trump's 2024 presidential campaign. Now that he has won (with Republican majorities in the House and Senate), investors believe Palantir could play a role in Trump's agenda, which could include mass deportation.
The company has a track record of working with the government, and it is remarkably resistant to public pressure, which was quite intense during the first Trump administration. That said, investors shouldn't get too carried away. Sometimes, news can generate excitement for a company that far exceeds the fundamental impact of the actual event.
Image source: Getty Images.
Palantir earned only $127 million from its work with ICE between 2013 and 2022, which isn't impressive when broken down over almost a decade. This sum pales in comparison to other Palantir contracts, such as the $480 million deal with the U.S. Army signed in May to help develop its Maven Smart System -- an artificial intelligence (AI) platform designed to identify and target enemy military systems.
With this in mind, Trump's election victory might not boost Palantir's business prospects as much as its stock reaction may suggest. And investors may want to pay more attention to the company's current fundamentals.
Is Palantir's stock a millionaire maker?
Palantir's third-quarter revenue grew 30% year over year to $729 million, which CEO Alex Karp credits to the adoption of AI by U.S. government clients, which made up around 44% ($320 million) of its sales in the period. This trend will probably continue over the long term, and Donald Trump's election might help. But even in the best-case scenario, Palantir's valuation seems to have lost touch with reality.
With a forward price-to-earnings (P/E) ratio of 143, calling this stock "priced-for-perfection" seems like an understatement. For context, the S&P 500 (SNPINDEX: ^GSPC) has a forward estimate of just 23, while the AI industry leader, Nvidia, boasts a forward P/E of just 38.
With shares up by over 530% since hitting public markets, Palantir has certainly already minted its fair share of millionaires. But new investors probably don't want to be left holding the bag when they eventually cash out.
