Big data reigns supreme! Since the rise of big tech superpowers, think Alphabet (Google), Facebook and the other ‘FAANG’ stocks, data has become the key component in allowing businesses to scale. Here’s one US stock with a hold on big data that I’d consider investing in.
Data is the business
Palantir Technologies (NYSE:PLTR) is a company that was, until recently, operating in the shadows. Busily working away, collecting and analysing data on a grand scale. Then, last year, it publicly listed on the New York Stock Exchange and has since seen its share price rise. The $42bn company started its publicly traded life at around $9.20 per share. This rose above $35 in January but has since fallen back to around $23. Its recent results for 2020 showed full-year revenue growth of 47% year-on-year, with projected 30% growth for 2021.
The company has not clearly stated when it can expect continual profitability, but it intends to continue investing in achieving further growth across the board. For example, it plans to spend over $1bn on cloud providers to help scale its software as a service (SAAS) offerings.
In its Q4 earnings call last month, the Palantir executives were very optimistic on the roadmap ahead and clearly believe they’re at the beginning of a massive opportunity to grow and make money. Their revenue target for 2025 is $4bn, which is up considerably from the $1.1bn in 2020.
US stock serving high-profile clients
The company serves government agencies such as the CIA, US army, and many private corporations.
Palantir’s SAAS offering is proving popular because of its speed, security and reliability. Security is crucial as hacking becomes an increasing concern. But this popularity also indicates a change in the way organisations can now collate and analyse their own data to better serve their customers and enhance profitability.
BP saved $1bn in 2020 thanks to Palantir’s Foundry software, which powers BP’s digital twin applications to enhance its hydrocarbon-based workflows. The oil giant now plans to use this software to achieve its net zero aims, thus signing a five-year, nine-figure enterprise contract renewal. Meanwhile, Palantir’s partnership with IBM could prove a lucrative long-term agreement with the potential to strengthen software offerings for industry.
Palantir investment risks to consider
But there are obvious risks associated with the stock, and some analysts are extremely bearish.
It has around 125 customers, which isn’t very many considering it’s been around for 18 years. This makes some investors nervous that it’s not diversified enough and can’t possibly have much room to scale. It’s an expensive stock and priced for future progress.
It’s also been caught up in the GameStop mania and therefore over-traded by short-term speculators and options traders. This led its CEO to criticise short-term traders, as this is a company with a long-term vision.
I expect share price volatility to continue for some time. The tech sector is under pressure as investors worry about inflation. Nevertheless, I think Palantir has what it takes to still be here, far into the future. It’s established with a strong history of government contract wins. Last year its full-year government revenue rose 77%. Therefore, as it deepens its relationship as a major government contractor, I think it will become profitable. With a 10-year window in mind, I’d happily add Palantir to my Stocks and Shares ISA.