Palantir Makes its Case Against Frontier AI

**Tyler Crowe** (0:02)
Palantir takes shots at OpenAI and Anthropic today on Motley Fool Hidden Gems Investing.
Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by the long-time fools, Lou Whiteman and Travis Hoium, doing a little bit of mixing it up. Everyone's getting those last-minute summer vacations in before the kids got to go back to school. So we'll probably see a lot of host shuffling and guest shuffling over the next couple of weeks. So we are deep in earnings season, and we had three really big earnings reports today. A lot of contrasting things going on in the market. We want to start today with Palantir because as we're recording, shares are up 26 percent.
The company reported earnings after the closing yesterday that beat expectations handily, they increased guidance. Everything looked pretty good. Now, there's been a lot of beat expectation earnings so far this season, guys, but I have yet to see one that's really resulted in market celebrating like we have seen with this one. So what exactly was it about Palantir's earnings?

**Lou Whiteman** (1:03)
They just blew it out of the park. They just fantastic results. I mean, this is a company with a lot of hubris and sometimes the hubris is justified. Ninety-three percent year-over-year top-line growth. If you want to look trailing 12 months, 79 percent growth, just kind of, so this isn't an anomaly, 51 percent cash flow margins. That's fantastic. The question forever here has been, there's no way you can justify the valuation here if it's a defense contractor. For all our jokes about the Pentagon budget, the Pentagon just doesn't spend money at the rate needed to justify Palantir's valuation. Commercial had been the laggard, but commercial was up 150 percent. This is exactly what you want. I can, Travis, I'm curious, what do you think? I can sort of squint and maybe see remaining performance obligations were flat, so maybe that might be a dent, but even then that could be commercials different than government, so that could be an adjustment. But I don't know.
Tell me what's wrong here.
This is just fantastic.

**Travis Hoium** (2:04)
Yeah, it's hard to quibble with any of the numbers. It is always harder for me to wrap my head around a company that's trading for 60 times sales because it's been over 100 times sales in the past year or so. That typically does not end well for investors. But if you compound your revenue at 100 percent year over year for multiple years, it takes that multiple down pretty quickly. So that's part of what we're seeing is just they are executing on exactly what the market has been pricing in for quite a while. As the shares have pulled back over the past few months, there's some of that, maybe we are going to see a little bit of a slow down. And then they went, you know what? Nope, we're going to accelerate that revenue growth. So hard to quibble with anything. Lou Whiteman said the biggest number that jumped out to me, it's 150 percent jump in US commercial revenue.
And customers aren't growing that quickly. So that means that the customers they do have are spending more. And that's impressive because it shows that they're not just testing it out and going, nah, we're not seeing any value here. They're actually saying, you know what?
We want more from you guys.

**Tyler Crowe** (3:05)
I think it's fair to say that CEO of Palantir, Alex Karp is a bit of an acquired taste for investors. Some people absolutely love him. Some people might find him a bit off putting with bombastic language, sometimes a little bit more aggressive and combative than a lot of other CEOs that you see in the market. You see it in his shareholder letters, you see it on the conference call. He did use that kind of aggressive language a little bit when talking about the large language model developers like OpenAI and Anthropic. But I think he did get at a core point that he was talking about and something that I think companies are really going to be thinking about and could really determine a lot of what happens in this AI race lately. It's the building model agnostic AI tools, similar to what Palantir does versus these models that OpenAI and Anthropic are doing, that end up in some sense building competing tools from their own customers after they've built a lot of their own data.
One of the questions I have is, does he have a point and does that really bode well for the future of Palantir where they can make this argument that says, hey, do you not want OpenAI and Anthropic taking your data and building your own competitor while you feed them their data come to us? Is that a valid sales argument or is that just being defensive?