Updates: Palantir - 2025 the Year of AI Application?

Summary

• While PLTR currently trades at a high multiple (~450x TTM P/E, ~150x NTM P/E), its earnings trajectory suggests significant upside potential.
• If PLTR can sustain strong revenue growth and reduce SBC to ~10% of revenue, its net income margin could expand from 16% to ~60%, narrowing the profitability gap with NVDA.
• Unlike OpenAI and cloud hyperscalers, PLTR built AIP from real-world enterprise use cases, making it more mature and deployment-ready for businesses.
• The return of a Trump administration could accelerate government IT modernization efforts, favoring PLTR over legacy vendors.
• PLTR’s broad data integration and security make it better suited for highly regulated industries compared to OpenAI’s more consumer-focused and developer-centric stack.

In this article, we take a contrarian approach to explore a potential bull thesis for PLTR, despite its lofty valuation and the massive gains from its recent trough—factors that typically signal weaker forward returns. Our goal is to outline our thought process and present a well-reasoned thesis that, while carrying inherent risks, has a solid chance of playing out.

Contrarian thesis for PLTR?

As 2024 drew to a close, our team grappled with how to position ourselves on Palantir Technologies (PLTR) — whether to go long, short, or hold. It was a challenging decision. On one hand, PLTR’s valuation appeared stretched, with metrics like an EV/S ratio exceeding 40x and a P/E ratio north of 40x. On the other hand, the momentum behind the stock showed no signs of fading. After rigorous internal debate, we decided to maintain a long position on PLTR.

Many professional investors, applying their heuristics would dismiss PLTR as overvalued. Through the traditional lens of hedge fund portfolio managers, who often favor value-oriented strategies and low multiples, PLTR’s metrics can seem unjustifiable. This bias typically steers them toward lower-growth, higher-visibility, and less-volatile opportunities — investments that reliably deliver a solid 15% return to satisfy fund targets but rarely exceed that threshold. However, this approach frequently overlooks transformative outliers like Tesla (TSLA).

We’ve long held the view that PLTR could follow a trajectory similar to TSLA. Many professional investors risk misjudging or underestimating Palantir’s business model and technological edge. Meanwhile, the company’s profound innovation is poised to drive rapid compounding growth — albeit with significant volatility — making it a rare opportunity that defies conventional valuation frameworks.

Source: Koyfin

Interestingly, if you examine the P/GP multiple curves of PLTR and TSLA, you'll notice striking similarities — particularly during hype-driven periods such as 1Q21, when strong company results drove multiples significantly higher. In recent quarters, however, TSLA's growth has stumbled for various reasons, whereas PLTR has successfully rebounded. Despite these different trajectories, the two companies' P/GP multiples tracked closely between mid-2024 and year-end 2024. This synchronization largely stemmed from PLTR's sustained revenue growth acceleration, complemented by an impressive expansion of profit margins. The margin expansion highlights PLTR's exceptional operating leverage — a factor we have consistently emphasized, despite skepticism from investors.

Yet, speculating purely on continued liquidity-driven momentum is akin to gambling: without superior information or analytical insight, you're relying solely on luck. Thus, what exactly constituted the fundamental investment thesis for PLTR, as of December 31, 2024 — beyond mere technical momentum or speculative positioning? Primarily, it hinged upon the continuation (and potential acceleration) of revenue growth and margin expansion.