OK.....I lied....one last post....again. Palantir: Incredible Q1 Earnings And Increased Guidance Aren't Enough https://seekingalpha.com/article/47...-earnings-and-increased-guidance-arent-enough (BOLD is my opinion OR what I consider important content) "Summary Palantir delivered an exceptional Q1, showcasing significant growth in customer base and revenue, but its current valuation seems detached from fundamentals. Despite impressive metrics, including 39% YoY revenue growth and high-margin operations, PLTR's valuation at over 500 times net income is concerning. Risks include potential declines in interest income due to Fed rate cuts and intense competition from giants like Microsoft. While long-term prospects remain strong, the stock may trade sideways as it grows into its valuation, with a target range of $70-$100. Palantir (NASDAQ:PLTR) just released its Q1 2025 earnings, and they crushed it. PLTR has gone from very few investors understanding the business model and being called a black box by many analysts to the software darling of the A.I. revolution. I have been an investor since the direct public offering, and I have been a long-term bull who still believes that PLTR will become the 2nd most important software company in the world behind Microsoft (MSFT). What I am unwilling to do is remain bullish and add to my position when the valuation doesn't make sense. PLTR delivered an incredible quarter as it showcased large growth rates across the board, which allowed it to increase guidance. PLTR now believes that it is on pace to produce between $3.89 billion and $3.902 billion in revenue and adjusted free cash flow (AFCF) between $1.6 billion and $1.8 billion. I haven't sold a single share, and while I still see long-term value down the road, I have a few problems with the current valuation and how PLTR reports its numbers. I think it sends the wrong message for a company with a $300 billion market cap to report adjusted EBITDA and AFCF numbers rather than straight EBITDA and free cash flow (FCF). It makes it look like PLTR is trying to juice the metrics. The people who were bearish on PLTR's relevancy have been proven wrong, but the elephant in the room is the valuation, and I think the market cap has found a top for quite some time. At some point, fundamentals matter, and I think it's going to take a long time for shares of PLTR to make new highs again. Seeking Alpha Following up on my last article about Palantir Shares of PLTR have exceeded expectations for many investors, including myself, as its shares have generated close to a 400% return over the past year. My cost basis is in the mid-teens, and I haven't sold a single share, but as an objective shareholder, I changed my investment thesis when shares of PLTR broke away from what I considered a reasonable premium. In my previous article (can be read here) I discussed how PLTR's latest AIP Con solidified its future, but I felt the premium shares PLTR was receiving weren't justified. PLTR had shown impressive growth, closing 660 deals worth at least $1 million in the 2024 fiscal year and proved the bears wrong, who felt it was an A.I. imposter. If it wasn't for the fact that I didn't sell my shares, I would have turned bearish on PLTR, but from a long-term perspective, I do agree with Dan Ives that PLTR will become a $1 trillion company. The difference is our time-frames. I think that PLTR may become a $1 trillion company in a decade or so, while Mr. Ives thinks it can happen in the next 2–3 years. I am following up with a new article to discuss PLTR's Q1 earnings and outline why I don't believe new highs will be reached for a long time. Seeking Alpha Risks to investing in Palantir I am not bullish on PLTR at the current valuation, but if shares fell to a more reasonable level, I would start adding to my position again because I think that there is still a long-term opportunity in PLTR shares. Investors should do their own due diligence because PLTR has several risk factors that should be considered. In Q1, PLTR generated $176.05 million in income from operations and $50.44 million from interest income. PLTR generated 23.17% of its net income from the interest it created from its pile of cash on the balance sheet. As the Fed pivots and starts to cut rates, the amount of interest income PLTR generates will start to decline, and this could put pressure on their future EPS. PLTR also has many competitive risks as the largest companies in the world, such as MSFT, are deploying products such as Fabric to compete with PLTR. If competitors develop better software, it could hurt PLTR's margins and top-line revenue. There is also valuation risk as PLTR is trading at more than 200 times 2025 earnings. Investors should consider what they are getting for their capital at these levels and do their own research because the top may be in for a long while. Palantir delivered an incredible quarter, and the business metrics are not a reason to be bearish Just because I don't agree with the valuation doesn't mean I won't acknowledge how strong Q1 was. PLTR grew its commercial customer count by 45.67% YoY as it added 195 commercial customers from Q1 2024 and 51 commercial customers in Q1 2025 alone. In the past year, PLTR's total customer base increased by 38.81% (215 customers) to 769 total customers, with 58 coming in Q1 2025. The customer growth has allowed PLTR to ink 468 deals worth at least $1 million over the past year, while 178 of them exceeded a value of $5 million, and 106 exceeded a value of $10 million. Just in Q1 2025, PLTR added 139 deals, of which $51 were for at least $5 million and 31 were at least $10 million. The growth in customer and deal numbers has allowed PLTR's revenue to explode. PLTR's revenue grew 39% YoY and 7% QoQ to $884 million in Q1. The big question for a long time was whether or not PLTR could scale its commercial business or would it rely on the government sector to produce the lion's share of its revenue. PLTR's commercial revenue grew 33% YoY to $397 million, and its U.S. commercial revenue grew 71% YoY to $255 million, and it also gained 19% QoQ. While PLTR was busy adding commercial clients to diversify its revenue mix, it also continued to grow the government business by 45% YoY to $487 million, with U.S. government revenue growing by 45% to $373 million YoY in Q1. One of the most important metrics when it comes to PLTR's business is their net dollar retention, which hasn't been discussed enough. PLTR ended Q1 with a net dollar retention of 124%, which means they are upselling their customers by 24% on average, based on their initial contract base. As PLTR adds more clients, this will be a critical success factor for its long-term revenue growth. Steven Fiorillo, Seeking Alpha Steven Fiorillo, Seeking Alpha PLTR's S-curve is starting to form on its quarterly revenue as its revenue grew by 39.34% YoY to $883.86 million in Q1, which was also an 8.88% QoQ increase. The metrics in Q1 were very bullish for the future as PLTR generated $304.08 million in FCF, which was a margin of 34.4%, and $214 million in net income at a 24.22% margin. More than 1/3rd of every dollar generated showed up in the financials as FCF, and almost 1/4th of each dollar was net income. PLTR is operating a high-margin business, and as their net dollar retention grows and more deals are signed, I believe the S-curve will get steeper as time progresses. It's hard to be bearish on a company that is delivering these types of growth metrics, and PLTR is positioned for the future as it continues to add large commercial clients and expand its footprint in the government sector. Steven Fiorillo, Seeking Alpha Palantir's valuation has gotten ahead of itself, and they may have a problem if the Fed gets aggressive in cutting interest rates The May FOMC meeting is on Wednesday and CME Group is projecting that the chances of a rate cut are 2.7%. While the chances are low, CME Group expects that the Fed will cut at least 3 times in 2025 with more than a 35% chance we get more than 100 bps of reductions. I think the Fed is backed into a corner, considering that unemployment is climbing while CPI is approaching its neutral rate. Many companies took out debt during the pandemic when rates were low, and if they are forced to refinance at these levels, margins will compress and potentially cause additional unemployment. I think the Fed will start to cut in June as oil is now under $60 per barrel, and inflation is near its neutral rate. If this occurs, PLTR's cash pile won't generate as much interest income, which is bad for its EPS. Over the past year, PLTR has generated $574.32 million in net income, of which 35.49% came from the $203.84 million produced by the interest on its cash. Depending on how quickly the Fed cuts, PLTR may not be in a position to offset the income lost from declining interest rates from newly contracted revenue, or it may not be able to grow revenue enough to satisfy the street's growth metrics on EPS. PLTR's cash pile has allowed them to juice their EPS, considering it accounted for 69.24% of Q4's net income, but as the Fed cuts rates, it will be harder to do. CME Group PLTR is a victim of its own success as the valuation has gotten ahead of itself, and its Q1 2025 report wasn't enough to keep the momentum going. Shares of PLTR are down -9.25% (-$11.45) in after-hours trading after reporting a revenue beat of $21.72 million, in-line EPS with consensus estimates, and increased guidance on revenue and AFCF. Normally, the street loves quarters like this, and PLTR's quarter was outstanding from a business perspective, but when the valuation is this far detached from the fundamentals, the only way shares could remain where they were or go higher is with a blowout on all metrics. After updating PLTR's metrics, they are trading at 508.53 times their net income and 221.53 times FCF. PLTR may be an exciting stock, but at the end of the day, it's a SaaS company getting a hefty premium because its software is focused on A.I. Adobe (ADBE) trades at a $162.41 billion market cap and generates 607.46% more revenue ($18.92 billion), 597.22% FCF ($7.87 billion), and 1,075.48% more net income ($6.18 billion) than PLTR does. It's hard to make the case for PLTR when it's trading at a market cap that is $129.65 billion more than ADBE, yet it's generating a fraction of the revenue and profitability. Look at CSCO, compared to PLTR. CSCO was the stock market darling as it was the backbone of the internet, and despite growing its revenue and net income by a staggering amount over the past 2 ½ decades, it has still never gotten back to its dot com levels. CSCO is currently generating $54.18 billion in revenue, which is 1,639.22% ($51.06 billion) more than PLTR, $12.81 billion in FCF, which is 871.65% ($11.49 billion) more than PLTR, and $9.19 billion in net income which is 1,499.63% ($8.61 billion) more than PLTR. It's hard to say that PLTR is trading anywhere near fair value or a reasonable premium when it's trading at 508.53 times net income and 221.53 times FCF when ADBE and CSCO are trading at less than 26 times net income and 19 times FCF. Steven Fiorillo, Seeking Alpha Conclusion I think that PLTR's price action is going to be interesting on Tuesday, 5/6 because it's already down -9.25% in after-hours trading, and this could cause a bunch of stop losses to be triggered when the market opens. I think it's difficult to get excited about PLTR at this valuation because there is so much growth priced in. This was an incredible quarter, and PLTR continues to grow its customer base and sign many new large-scale deals, but it's been priced for exponential growth, and that's not what is being delivered. I think a big problem was that they didn't hit the 40% YoY growth metric, and their EPS didn't beat expectations. I think it's going to be a difficult year for comps as the Fed cuts rates, and we may not get exciting EPS growth from PLTR, which could impact its valuation in the future. The after-hours price action indicates that the strong quarter PLTR delivered wasn't enough, and I am expecting a modest sell-off for shares of PLTR to trade in a range of $70-$100 for a while. I do believe that PLTR will be a much bigger company in the future, but too much of that growth is already priced in, and we could see PLTR trade sideways and grow into a new valuation as Q1 earnings weren't enough to take shares higher." MY COMMENT I have ZERO plans to sell any of my PLTR shares any time soon. BUT....for anyone just considering buying the stock for the first time right now....you might want to consider the opinion above. I am also interested to see the open and how the stock does today and this week. It is very much a DARLING of the little retail investors. We will see if their collective knowledge and instincts are more ACCURATE than all the big whiners and bully's on Wall Street. I am inclined to never bet against the collective...."little people". BUT....as I said....anyone that is thinking about buying....consider the above and do a little research and thinking. Most important will be the length of time that you are willing to hold the stock as a long term growth vehicle to allow them to continue to grow into the numbers. I am content to be patient a long time with the numbers that this company is doing and more importantly their management and the AI revolution. Of course....I have HUGE gains in my position so far that make it easy to sit and be patient......even if we see somewhat of a pull back in the stock.
