Updates: PLTR 2Q23 - The LLM Enabler For Enterprises (Pt.1)

Summary

• There are a number of indicators that collectively suggest PLTR could durably reaccelerate growth during the next quarters.
• Based on an in-depth valuation analysis, we think PLTR's stock is currently trading at the lower end of the fair value range.
• We discuss the possible terminal revenue level for the Department of Defense as PLTR pursues the ambition of becoming the first software prime contractor.
• Additionally, we discuss PLTR's key advantage in operationalizing LLMs for enterprises.
• We also discuss PLTR's advantages in security and governance related aspects, which are hot subtopics in the realm of GenAI.

Recent Price Action Recap

Roughly from the beginning of the calendar year, PLTR’s stock has been climbing higher, largely catalyzed by the buzz associated with AI. Through to mid-April, the stock was generally carried forward by the general AI hype, and this was further supported when the company launched AIP (Artificial Intelligence Platform) toward the end of April and then broadcasted the AIPCon event at the beginning of June to showcase AIP to its fullest (note that the second AIPCon is already scheduled for September 2023 - a major signal that this is fast becoming a product garnering much attention).

Since OpenAI launched ChatGPT on 30th November 2022, PLTR’s share price has now more than doubled, establishing itself as one of the early beneficiaries of the LLM trend. Some of the stock appreciation is over-exuberance, but at the same time for large enterprises wanting to deploy a LLM within their organization, there is no better alternative than PLTR. For an implementation of a LLM at an enterprise to be successful, it needs a robust ontology. This is because it is the common vocabulary that it learns from the ontology that will increase its knowledge and develop it into a highly effective assistant.

LLM implementation might finally be the USP (Unique Selling Point) that PLTR has been in desperate need of. PLTR has tens of solutions that could each be spun out into a SaaS startup themselves, though, paradoxically it is this breadth and depth that has prevented PLTR from executing its GTM to its potential. For many enterprises and decision makers, they want to begin a new vendor relationship with a single solution to address a single problem. Up until recently, PLTR hasn’t really had that single USP, but LLM implementation might be just that. We shall dive into the specifics of why PLTR is best positioned for this later in this update report.

Much of PLTR's near-term future price action will be driven by the magnitude of the ongoing AI hype, as much as it is driven by the company's fundamentals. Therefore, while being still relatively positive on the stock, if the AI hype recedes then it's likely PLTR's share price will also. Having said that, as you will gather in this report, we're long-term bullish on the stock. But, as always, getting the right price is paramount.