Big data isn’t going away. In fact, it seems to become more important to the business world by the day —a reality that has not been lost on the investor community and has kept Palantir Technologies Inc. (NYSE: PLTR) on the radar of retail and institutional investors alike in recent months.
And with the data mining company having just announced a new $111 million contract with the United States Special Operations Command (USSOCOM), on top of recent efforts to bolster its presence in the healthcare sector, it is likely to stay atop investors’ radar moving forward.
Though Palantir has seen its stock lumped in with the Reddit trading frenzy that sent the value of companies such as GameStop Corp. (NYSE: GME) soaring earlier this year, and the rise of its stock price to $45 in late January was certainly helped along by such enthusiasm, there is more to the company’s long-term prospects than just the backing of its Reddit fan base.
Founded in 2003 by high profile venture capitalist Peter Thiel and the company’s CEO Alex Karp, among a handful of others, Palantir is one of the world’s leading players in the field of data analytics and artificial intelligence software, boasting a track record of more than 20 years of operation with government support. Prior to news of its contract renewal earlier this week, Palantir had already spent nearly two decades supporting the government, with roughly a decade of that time spent supporting its contracts with USSOCOM —the combatant group that oversees the special operations efforts of the Air Force, Army, Marine Corps and Navy.
“Government contracting is a good business to be in, as governments are predominately interested in outcomes and not price. Furthermore, maybe this is a touchy subject, but if you have good lobbyists as Palantir does, it is easy to become indispensable to policymakers, much like other defense contractors have done,” said Cameron Fen, head of research for A.I. Capital Management, adding that it would be incredibly difficult for smaller competitors to replicate Palantir’s political connections.
Though analysts note that the complexities of working with the government can be limiting, particularly given the extensive red tape involved, Palantir’s management is quick to point out that it has tremendous growth potential, as it currently only services about 1% of the total $120 billion market that currently exists for the types of services it supplies. And with management’s sights set on annual growth of roughly 30%, Palantir has recently stepped up its recruiting efforts to bring on top notch engineers and salesmen as part of its effort to expand the company’s operations on the healthcare front.
Palantir Technologies is building out its healthcare division
After assisting both the U.S. and U.K. governments and healthcare agencies with their efforts to track and manage data related to the COVID-19 pandemic – from tracking infection rates, to managing the supply chain of medical supplies, Palantir recently recruited several high-profile medical professionals as the company looks to strengthen its expertise and ties to the healthcare community. In early May, it also announced a multi-year partnership with biotech firm Celularity, which furthers the goal of continuing to expand its business reach beyond the government contracts that have accounted for the bulk of its business.
On a recent earnings call, Dave Glazer, Palantir’s CFO, also indicated that the company will be wading into the cryptocurrency arena as well and is looking at investing in Bitcoin and possibly accepting the digital tokens as a form of payment — news that isn’t necessarily surprising, given Thiel’s enthusiasm for cryptocurrencies.
Added A.I. Capital Management’s Fen: “There will certainly be more and more demand for predictive analytics and big data. More than 1 billion gigabytes of data are created every day. Not only is AI improving, but the data that is needed to complement AI algorithms is also increasing.”
He pointed to the fact that research suggests that we are just starting to see the effects of AI on the economy. “Palantir has favorable long-term prospects. Initially, the company was more of a consulting company that had humans in much of their data integration process. However, they have automated much of their tech, which leads to higher margins and increased profitability,” said Fen.
Controversies around immigration policing
But Palantir is not without controversy. “Activists say that Palantir’s technology allows unparalleled spying potential with no supervision on privacy and fundamental rights. Human rights activists have protested Palantir for its U.S. government used to target illegal immigrants. According to immigration rights organization Mijente, Palantir technology is used to conduct raids against thousands of unauthorized persons. Critics charge that predictive police technologies, such as Palantir, can reinforce prejudice in law enforcement,” said Tony Kelly, CEO of website CameraGroove.com.
For now, however, investors seem to be willing to look beyond such concerns to the company’s strengths. Though Palantir is still quite far from its January high, the data mining company’s stock is still well above the $10 per share price it came public at through a direct listing on September 30, 2020. The stock, which several analysts have rated as a hold, most recently closed at $24.45 on June 2nd.