Working with the government continues to be an important part of the business for Palantir Technologies Inc (NASDAQ: PLTR).
On Monday, the big data analytics company won an expansion on its contract with the US Special Operations Command.
But could the “government” segment of Palantir be at risk now that President-elect Donald Trump has tasked Elon Musk and Vivek Ramaswamy with cutting the US federal budget by some $2.0 trillion?
Well, not really, as per Alex Karp – the chief executive of Palantir Technologies Inc.
Why does Karp has confidence in Elon Musk
Alex Karp dubbed Elon Musk the best person to lead the new initiative called the Department of Government Efficiency.
He does not expect the billionaire entrepreneurs to hurt Palantir’s business as it equips the government with productized software that tends to be enormously efficient.
“I have enormous faith in both of them to figure out what’s working,” CEO Karp said in a recent interview with Fox Business.
Efficiency and transparency within government operations, he’s convinced, will produce better results at a lower cost – something that’s in line with the broader agenda of the Department of Government Efficiency.
That’s why Palantir’s US government revenue increased by 40% on a year-over-year basis to $320 million in the company’s latest reported quarter.
Palantir handily beats the ‘Rule of 40’
CEO Alex Karp took a positive tone as he discussed what the future holds for Palantir Technologies with Fox Business.
He’s bullish as the “primary basis of the US economy right now is technology”. More importantly, PLTR is well-positioned to capitalise on AI which Statista expects will be a $1.0 trillion market within the next ten years.
According to the “Rule of 40”, a well-performing software-as-a-service (SaaS) company should have a combined year-over-year revenue growth rate and profit margin of at least 40%.
Palantir, in comparison, sits at a global high of 68 at writing, the chief executive added. Nonetheless, PLTR stock has yet to announce a dividend.
Analyst still recommends pulling out of Palantir stock
Despite rapid growth and the management’s confidence, William Blair analyst Louie DiPalma remains bearish on Palantir stock due to valuation concerns.
He sees PLTR as fairly valued at about $40 since its fundamentals are not all that different from Snowflake. Still, Palantir Technologies is worth over $100 billion more than SNOW at writing.
DiPalma expects the Nasdaq-listed firm to fall more than $700 million short of its revenue estimate for 2025.
He does now see the company’s recent team-up with Booz Allen to ramp the US national defence as a meaningful catalyst either.
As such, William Blair recommends that investors now take profit in Palantir shares that have more than quadrupled since the start of this year.
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