Palantir Technologies: investment opportunity or risk to avoid?

That is: the sale of software licences, mainly on a term basis, which allows customers to use Palantir's solutions in their own environments. Last but not least, there is the consulting and adaptation of products to customer requirements. In view of the above, it is clear why, in the revenue division, the American multinational makes a distinction between government business (USD 1.57 billion in 2024) and commercial business (USD 1.3 billion).

Having said that, what then is the performance of the business? In the fourth quarter of last year, the company beat estimates both in terms of revenue ($827.5 million) and profitability ($0.14 adjusted EPS). Not only that.

The company reported a very positive outlook for 2025: turnover, for instance, is expected to be between 3.741 and 3.757 billion, with the business sector expanding by at least 54%. Against this background, Palantir Technologies' share price gained 22.9 per cent in the single session following the publication of the data.

That said, and more on the long term, the company in the full year 2024 increased the first line of the income statement by 29% (over 2023) while the Gaap net profit rose to 467.9 million (16% marginality). In short: the numbers seem to point to a company with solid fundamentals, which is growing rapidly and has been consistently achieving profitability for the past two financial years (in 2022 Palantir Technologies had been in the red by EUR 371 million).

The reality, however, is more complicated and, as always, numbers and trends need to be analysed more carefully. In this sense, a first aspect pointed out by the experts is the diversification of the business, with the demand (by the market) for greater relevance of the commercial world.

A need which - after the new US Secretary of Defence Pete Hegseth's indication to cut spending by 8% annually - becomes even more pressing. Well: on closer inspection - despite the increase in commercial customers - the incidence of government orders has not dropped much: it was 58% of turnover in 2021 and settled at 55% last year.

Of course: the underlying trajectory is downward. In addition, some operators point out that, on the one hand, defence cuts should not directly affect Palantir's solutions; and that, on the other hand, its products - focused on making operations more efficient - could even benefit from the increasing automation of agencies desired within the Doge programme (which is causing thousands of unemployed).

That said, however, it is precisely the risk of lower defence outlays that is among the reasons for the share price declines in recent weeks. In other words: the market notes that the government business is still preponderant and - therefore - cynically worries.

But it is not just a question of military or defence procurement. Another aspect is net profit and its composition. Several analysts emphasise the impact of financial management on profits. Thus, for example, the bottom line in the income statement in 2024 stood at EUR 467.9 million.

However, interest income (EUR 196.8 million) contributed significantly to the figure. An impromptu event? Not really. This accounting item steadily increased from 2021 to 2024. In particular: the biggest jump occurred between 2022 and 2023, when it rose from 20.3 to 132.6 million. In conclusion: the net result does not result exclusively from the core business, but is also the effect of financial activities. True! In order to grasp the true profitability of Palantir Technologies, one only has to look at the operating income.

The latter rose to 310.4 million in 2024 (it had been 119.9 in 2023). And, however, its ratio to revenue is worth 11%. A marginality lower than that attributable to net profit (16% of turnover).

As if to say: the (adjusted) EPS beat estimates (pushing the stock up), but the fact must be analysed with the right distinctions, highlighting the relevance of activities unrelated to the core business. In short: an analysis of the numbers - together with knowledge of the company's history - can help the do-it-yourselfer to understand whether he is faced with a 'buying the deep' opportunity or whether, otherwise, the situation can be traced back to the horror film entitled: 'catching a falling knife'.

Up to this point, some suggestions regarding the dynamics of the income statement and fundamentals. There are, however, further methodologies in order to avoid getting hurt with the 'falling knife'. Which ones? One among others is to look towards the multiples on the stock exchange. On this front - according to SeekingAlpha - the ratio of price to non-GAAP earnings on 2025 (as of 14/3/2025) is 144 times. This is a value that - it must be emphasised - is meaningless. In theory it means that - assuming constant profit - it would take 144 years to repay the purchase price of the stock. Obviously, investors are betting on the company's earnings growth. According to SeekingAlpha, the market consensus estimates EPS to rise by 36.18% in the current year.

Thereafter, in 2026 and 2027 growth is expected to be +25.26% and 36.9% respectively. Finally: with regard to 2028, earnings per share are expected to rise by 46.8%. The trend thus described -unfortunately- reduces the "Price to earnings", which -according to the consensus- could reach 87 in 2027 and then 59.33 in 2028. Needless to say - even in the face of the economic/financial leap into the dark to which US President Donald Trump is forcing the West (and beyond) - such forecasts are challenging.

Just as challenging is the Beta of the stock. According to the Bloomberg terminal, the indicator for Palantir technologies shares is 2.17 against the S&p 500. What does this mean? It means that the stock amplifies the dynamics of the reference basket. In other words: when the S&p 500 rises (or falls) by 1%, the stock tends to rise (or fall) by 2.16%. This is again a characteristic - quite common among hi-tech companies - that must be considered when assessing the opportunity of 'buying the deep'. Should the S&P 500 - in the wake of another wave of generalised selling - fall again, the eventual descent of the US multinational would be greater.

But it is not just a question of Beta. Another methodology that can be useful in addressing the issue (at least in the short to medium term) is that of technical analysis. 'The long-term underlying pattern,' says independent analyst Silvio Bona, 'is still bullish. However, a so-called correction phase is currently underway'.

The trend 'is the consequence of the stock's very strong acceleration, which took it to an all-time high of USD 124. At present, therefore, caution should be exercised and, downwards, the static support area around 63 dollars should be monitored. That is, the level representing the lows of 2025'. The do-it-yourselfer is warned.

Stock technical analysis