Palantir (PLTR) has continued to outperform, driven by the hype surrounding the AI boom. Jefferies Senior Analyst Brent Thill joins the Morning Brief to share his outlook on the stock.
Thill acknowledges that Palantir's main challenge lies in its valuation, describing it as "the single most expensive name." However, he remains optimistic about the improving fundamentals at the company and believes the opportunity for investors is "enormous" in terms of AI, although he suggests that there may be "better entry points," which is why he maintains a Hold rating on the stock.
Drawing a parallel to Tesla's (TSLA) early days, Thill explains, "When they launched this company, it was like when Musk launched the Tesla," noting that it was unaffordable for most of the population.
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This post was written by Angel Smith
Video Transcript
I wanna bring in Brent.
Phil.
He's a Jeffrey senior analyst, Brent, it's great to talk to you.
So, taking a step back here when you take a look at Palantir shares are up just around 40% since the start of the year.
Lots of questions just around the hype surrounding the stock.
Clearly, it's been a wild run for some investors.
I'm curious, is your take on the current position of Palant right now?
I believe you still have a hold rating on the name.
Yeah, good morning.
Uh fundamentals are, are obviously improving at Punier.
Uh What holds us back right now is valuation.
It's the single most expensive name in our coverage universe.
Uh So great companies with great uh momentum uh sometimes are look expensive uh on the opportunity set.
And we, we obviously believe that opportunity set is enormous for Pune and A I.
Uh but we believe there's going to be better entry points for the stock.
Uh the fundamentals, they've done a really nice job, you know, the beginning of last year, but basically 75% of the year they didn't produce anything.
And then in Q four things started to turn, they really cleaned up all the, the bad execution uh last year in Q four and then in Q one, they had a really good number.
So you've had two good quarters.
I think they got in front of the A I uh wave better than others.
Uh Clearly A I is really an infrastructure.
If you look at what's happening with NVIDIA and all the other names, it really hasn't come to the software layer.
Um Palant is bucking that trend.
They have seen great momentum uh in in their suite and customer adoption has been has been good.
So give them credit where credit's due, they're doing a fantastic job there.
But uh again, you go back to multiple being the the single richest name and in software.
So you have valuation risks right now.
You don't have fundamental risk.
Fundamentals are, are really good.
Yeah, I mean, it's particularly interesting too when we hear Alex Carp talk about the biggest use cases and, and how important their company is and their estimation or calculus for what they believe the world could move towards unfortunately, and, and it, it really is trying to figure out which governments, which companies are best, trying to position themselves.
If we do see even more geopolitical tension, how much of that can be part of the the thesis into why Palant would succeed rather than other factors.
It it helps.
So, you know, half their business is government, half of its commercial, uh commercial business is doing really well.
The government business isn't doing as well but is, is, is still a AAA bright spot.
Uh And so certainly more tensions, you know, effectively need software to effectively do scenario planning, to do disaster planning, to understand uh you know, what assets you have, where they should they be.
Uh So they've always thrived, you know, in, in that uh in, in that, that part, I think that the cha the challenge for investors on the government business is one, it's hard to really talk to the CIA or whoever has the software to really actually see what it's doing and does it work?
Right.
So what we've said to investors is the government business is really difficult to analyze because it's hard to talk to most of those governments.
They don't want to talk to anyone about how they're using it.
It's very secretive.
So you effectively cannot predict what happens in the government business.
On the commercial side.
We can do a better job of that.
And I think that's where we're seeing great success.
United Airlines, uh a handful of the other great case studies that they're getting you.
Those are real case studies on supply chain, aircraft maintenance.
Uh They're doing a really nice job there.
So the government business has been in, in, in, in our opinion.
It, it's, it's, it's gonna be a great, it's great, but uh you're really gonna be able to do the work in the commercial business and the commercial inflection is happening and I think this is the area that needs to continue to improve because the government piece is just unanalyzed.
You don't know when it lands, they're big deals.
You don't know when one country is gonna buy the product or another.
And they, they tend to be massive deals.
They tend to not, you know, be little deals or they're huge deals.
So when they land, um it's just, it's difficult on timing.
Uh So no, no doubt it will help them.
And I think their position in A I and the success stories that they're getting now are really gonna be what's gonna keep exci investors really excited, which is when they launched this company.
It was like when Musk launched uh the, the Tesla, it was unaffordable for 90% of the population.
Now, nurses and interior designers and accountants can buy the Tesla because they brought to the mass market and pune bringing this now to the mass market.
That's what is exciting me the most at the beginning.
It was really built again for special people uh that have special budgets and, and now they're, they're trying to eventually change that by saying, hey, you can go into a boot camp, you can buy this product for your supply chain, you can get it up and going and in a month or two get value and then build into it.
If, if you get success.
Um That's a great call.
We love that strategy.
That's the same playbook that Elon Musk ran.
Uh So, you know, hats off to them.
Uh You know, we missed part of the move in the stop.
But, but I also think, you know, you can be patient given, given some of the valuation concerns that we have.
