TIP841: Palantir – Palantir is Cheaper than I Thought! w/ Daniel Mahncke & Shawn O’Malley

Transcript from https://podmenti.com/t/e91e24a4c3179c36

You're listening to TIP.
Welcome back to the Investors Podcast, episode eight hundred and forty one. And the last time the two of us talked, we discussed our biggest winners and our biggest losers.
Out of all the companies that we pitched in the last one and a half years and
I thought that was a lot of fun.
It was a nice change of pace, but
Today we're getting back to what we do best, and that's flipping over more rocks, looking for opportunities and
You've got a stock pick today that listeners will
Probably have very mixed opinions about and there's
Others who have heard a lot about it, but I'm guessing really are gonna be excited to better understand what the business is all about.
It is a divisive company, I would say, but also a very popular company, especially in the investment circles and
I know you and Kaya looked at SpaceX not too long ago and surprise, surprise.
That company is far away from being a value play.
And therefore not the type of company that we want to invest in.
And I thought it might be the same for today's pitch, which maybe we should say it is Palantir.
And please don't get me wrong, penalty is not a value play.
But when I start my research.
I did it thinking in the back of my mind at least.
I might need to abort and look for another company because it's just
No sense in pitching it.
But that wasn't the case. I actually found myself
Pretty excited about the opportunity.
Just a year ago, Paladier traded at twice the multiple with half the growth rate and
That has completely shifted now and
Again, that doesn't make it a value play.
But for everyone who loves high quality companies, as most of us do, and is a generally curious person,
I think you should listen to this. I think you will be positively surprised by today's pitch.
Yeah, maybe I'll be one of them.
Just like you, I never look at palantir, thinking it was way too expensive anyway, but if you're intrigued by it, then I'm ready to get into it.
Since 2014, with more than 200 million downloads, we have interview the world's best investors, studied deeply the principles of value investing, and uncovered many compelling investment opportunities.
We focus on understanding businesses and intrinsic value, investing accordingly, and sharing everything we learn with you. This show is not investment advice. It's intended for informational and entertainment purposes only.
All opinions expressed by hosts and guests are solely their own, and they may have investment in the securities discussed. Now for your hosts, Sean O'Malley and Daniel Manka.
All right, so where do you wanna start?
Personally, I I I think I could use a brief explanation of what exactly Pointer does. I can't really say I have a good idea of what they do. It's a very enigmatic company.
Yeah, before looking at this for the episode, I honestly
Didn't really know either, but it's quite fascinating. So
To give a first quick example.
Let's imagine
Any large organization, right? It could be an airline, it could be a hospital, it could be
The car manufacturer or the army, which is actually a big client.
But it could be anything else too, so
There's always a lot of information in all of these organizations, right? But it's scattered across dozens of separate systems and departments.
They barely ever talk to each other, at least not officially. And I certainly can say that's the case in Germany but I think it's also the case in the US.
So let's just stick with the example of an airline for now.
Assume you have an airplane that runs into technical problems in let's say, you know, Frankfurt Airport, which
Likely happens again in two weeks time when I'm on my way to our intrinsic value conference.
In New York City.
Traditionally, how it works with my travel.
But then the question for the epit is
What happens now?
Well
The maintenance team wouldn't know which part is failed and how long the repair would take.
A different system would then know, you know, what's about the crew and how many duty hours have they left.
A third one, which you should put no what passengers are on board.
Then a fourth would know which of those passengers have connecting flights that they need to get.
And a fifth one wouldn't know were those replacement seeds.
So
You basically have five different systems and teams that need to communicate and coordinate.
And the way this is actually still getting resolved. Today, in twenty twenty six
It's but just phone calling each other.
And all the while, Daniel, you're just sitting there inside of that plane stressing about whether you're gonna make it to uh the conference in time and hopeful not.
Finding yourself waiting on four canceled flights like what happened when we went to Omaha last time.
for the Berkshire Hathaway shareholder meeting, but
It's a good thing you'll be arriving in New York a couple days early this time.
Yeah, I'm uh not taking any chances. And by the way, if you're asking yourself
What is this in conference in New York City? Well, as Sean, you put it rightfully before, you labeled it as the value investing conference or event of the year and
That means on Saturday, the nineteenth, we will host an intrinsic value conference in Midtown Manhattan in September.
And we will have speakers from our mastermind community and of course
You, Carl, and I
Will also be on stage and
If you think that sounds great and you want tickets.
I will link to those in the show notes. Otherwise, the easiest way to join for free is to be part of our mastermind community.
And I will also have a link to the application process.
For that.
In the show notes as well.
Yeah, if you want a ticket, you can just go to intrinsic value conference dot com.
That's another way to do it, but
Alright, let's get back to
Talent here, so
What?
Do they actually do and
What do they sell?
Yeah, it's kind of complicated. So what Palantir sells.
is a software layer that sits on top of all the five systems that we talked before, right?
And then, you know, to just stay with the airline.
They will tell you where's the airplane, where's the part that you need, where's the crew, where the passengers
And the connections between all of those.
And they call it things.
So all of these things are now connected on what you sort of can imagine as a map.
Crucially.
The software also knows
Who is allowed to do certain things, so rebook a passenger, assign a different crew, rather than aircraft somewhere else.
So you can imagine it as
Looking at this map.
That knows everything that's happening.
In real time.
That's what, you know, Palantir calls the ontology and
You might think well
Isn't this just a database? Because that's what came to my mind first.
But the difference is that what Palanti builds
Is not only
facts. So you know the plane's tail number, for example, or passenger seat.
But also the relationship.
And the actions between all of these things that I mentioned. So
Pallantier system knows that Passenger X is on this particular airplane.
Which needs this particular part.
Which is fitted by
This particular crew.
That's how you can imagine it.
And also notice that rebooking is an action that exists. So
Who is permitted to prove it?
They know that.
And what else has to happen when it does. So the combination of all of these things.
is what Palantir calls an ontology. And the ontology is what we'll talk about today.
Quite often, so again, if you just have to have something in mind.
Think of a map that has
Everything that you could imagine.

Who is who and what is somebody allowed to do so it's easier to communicate.
Yeah, so basically you have this all knowing map or
Ontology.
Layer as they refer to it and
That always
basically knows what's going on and what has to happen next and who can make that happen and so
Gosh, it kinda reminds me of something that would be part of
A Hollywood movie, like some action movie where the lead roles are out there in the field fighting the bad guys, and then there's like this control center that always knows exactly what's going on and is like feeding them advice.
That's what I think of when I think of Palantir.
That's probably not that far off, especially when you think about the surveillance and defense work and
I'll get back to that and explain it in more detail and how it all works.
But I think we should also take a quick detour and talk about the history of the company because that's quite interesting as well.
So Palanti was founded in two thousand and three by Peter Teel.
Alex Cobb who was also the current CO.
Joey Lunesdale, Steven Cohen, and Nathan Gettings and
The idea actually goes back to one of our favorite companies of all time.
PayPal, and I say that somewhat ironically, because we lost some money on that bet.
Obviously, Peter Thiel also found that that company PayPal and he repeatedly had problems with Ford. As you can imagine, it's a payment profile.
There are a lot of people who want to take advantage of that.
The fix he eventually came up with was that, you know, you could have a mix of software which could sort of surface suspicious patterns by going through a ton of data.
And then you have a judgment call of a human that is still at the end and
At least then.
The most accurate thing that you could do.
And then something happened in the US and that was nine eleven, and it became clear that US agencies
generally had all the information they needed to stop the attack from happening.
But the information was scattered of course.
different agencies that couldn't bring it all together in time. Again, going back to this ontology idea.
They had all the information, but it was not on one map. They didn't know who can communicate to who.
And that was the idea.
And that's why and also how.
Peter Thiel got the idea for Palantir.
The seat thought.
What if you could build a system that connects
All of these fragmented seemingly unrelated data points.
To map out hidden criminal behavior.
Similar to what he did with paper.
Just on a whole nother scale.
Do you know why Peter Teel
Isn't the CEO of
Palantir or why he didn't want to be CEO because as far as I know, he chose Alex Carp early on to run the business.
And he's taken on more of a fundraiser and advisory role, but he also owns the largest individual stake in Palantir at about four percent and and Alex Carp holds two and a half percent. So he has the most skin in the game of anyone.
I think we all don't fully know what goes on in Peter Tell's mind, but
I would say there's something to say about
That being a strategic choice as well.
That
Peter Till might not be the best person for this YO job. He had the vision, certainly.
But he might not been the guy.
who, you know, wants to be the CEO of the company. Actually, you know, if you think about PayPal
He wasn't the CEO there either for a very long time.
He just generally tends to work more on
Building new stuff and maybe
gaining influence in both the tech founder world but then also in politics, which seems to be more interesting to him nowadays and
I would say that's at least how it seems to me, and I don't know.
As well as you what Peter Thiel's reputation is.
in the US, but I can tell you that
It's not that great here in Germany, and I'm sure there's more of a spotlight on him since he was born in Germany. That could be one of the reasons.
But I think getting into national deals with governments
Might just be easier.
Especially considering the
Sensitive information needed.
If Peter Teel.
Is not the CEO.
Although I gotta say, Alex Cobb is
probably on his best way of getting an equally bad reputation, and again
He might be viewed more critically here in Germany too, because he actually lived here and he studied here for over a decade.
Actually fun fact, he got his PhD at the Goethe University, which is also where I studied.
And his doctoral advisor was the famous German philosopher Jürgen Habermas.
Wow. So Stanford first and then go to university. I I didn't realize how strong
that German connection is that runs through talent here and
For Peter Teal, gosh, I mean
He's controversial, of course, rightly or wrongly, he gets caught up in a lot of conspiracy theories and
I have to admit he does.
Give off like supervillain vibes. Which doesn't pair very well at all for a company that is really generally working to increase
government and corporate surveillance.
In some sense, but
Whenever I think about Palantir I don't know, again, like the Empire from Star Wars.
comes to mind, you know, like the bad guys. Palantir and and Peter Tiel.
They probably both need a lot of PR help, uh some sort of rebranding would go a long way, but
Again, it also goes without saying that Peter is hugely respected in the investment community and in Silicon Valley and his book Zero to One is one of my favorite investing books ever.
And if you read that book and then you look at Pellenty.
I think it gives you an idea of what the philosophy behind founding that company was and
Besides Pilate Hill, who bankrolled an initial cost of thirty million dollars for this company,
In Qtel, the CIA's venture arm also put in two million dollars, which
Doesn't sound like a lot when you compare to Palantir's size today, which is depending on the day.
between three hundred and fifty and four hundred billion dollars.
But it was less about the two million dollars and more about the access, you know, that you get to the government sector if you're sort of sponsored.
By you know, the venture arm of the CIA.
They actually introduced Palantir to working for most of these intelligence agencies, but also analysts.
And for a good two years, Puntier basically built the product or their only product.
Just for this one client.
You said it casually there, but there's a venture arm to the CIA. That's something
I'm gonna be researching more after this episode. That sounds really interesting that to learn more about w what kind of venture bets the CIA makes, but
You said two years, is that how long it takes to onboard a customer for Palantir?
Well it used to, and and that's actually quite interesting because the long onboarding time
Is why Palantir.
actually looked like a failed company just a couple of years ago.
So first of all
Why does it take so long to unboard a customer to Palette here?
As we said earlier.
The ontology layer is basically a digital twin of a customer's entire organization.
So you need to understand
every single little detail of a corporation. If that's a huge one, that takes a lot of time.
And the setup was that Pellantier had two kinds of engineers. So there were product engineers who built the actual software, and then there were so called
Forward.
Deployed engineers or F D
Who flew out to the customer and worked from the customer's offices.
for at least three to four days a week and that could easily take
I mean,
Not necessarily two years anymore.
But it can still take months until they've actually finished their job.
On the ground work.
is what costs so much time. I've gone through quite a lot of reports from ex Pununteer employees.
where they walk through their experiences basically and many of them mention
What we said above.
Which is that
Before AI.

Basically.
Many people thought of them just like enterprise consultants and not much more because you know, they travel to the client, they work with them.
And they deploy some sort of you know, how much or how difficult can that actually be?
That's because a lot of what they do is on the ground work, you know, just figuring out how things work, how things work together and what works and what doesn't.
inside the company and all that sort of stuff.
The Boots on the Ground approach reminds me of CoStar, which is a SaaS company that we have in our intrinsic value portfolio and
For decades though, they sent people to commercial properties to take photos and map it all. And they still do that and they have armies of people.
that are, you know, creating this basically unique data that nobody else has because they're going out and
physically documenting all the details of these properties and
That might not be the most efficient way to do it. It's not the fastest.
But it definitely builds a moat because most other competitors
are not gonna go that far into the weeds and
It would be hard. It would just take them many years to recreate.
Something like the database that Co Star has and so
It seems like Palantir has maybe done something similar.
Actually also thought of Coaster when I heard about this, but obviously what penalty does
It's a hundred times more difficult, you know. No disrespect to Costar and holding an own portfolio.
But it's way more complicated. I mean the biggest problem is that the data it needs to create these digital twins.
and highly capable and actionable databases.
is scattered across the entire company.
And often the data is only halfway digitized too, so
I don't know, think about handwritten documents that were scanned to a PDF, but as you would know
That still makes it unsearchable, right? It's digitized, but you cannot just search it up, which makes things just way more complicated.
That's just one out of a hundred possible problems.
Again when I went through
You know, these ex employee
Articles of what they encountered there. It was just
Sometimes it was almost unimaginable and
Another very interesting part is that many ex employees described internal politics.
It's one of the toughest hurdles, so
Before Palantir comes in.
Everybody is doing their own thing, and because of inertia and perhaps also the fear that you just won't be needed any longer when Palantir Software actually exists.
Many times.
the middle management more or less refuses to hand out the actually important data.
So again, the stories you can read about that are actually quite funny and I might link to some of them in the show notes.
But of course, they can't blatantly refuse to give out the data when the company
has actually hired Palantir to work with them.
But they will just come up with these.
Little excuses and for like
This specific database can't be accessed because, you know, security protocols.
Or maybe they just literally
keep delaying the meetings and you know cancel on calls.
That's the stuff that had.
People did in the past, so
In short, I think it just turned out that a lot of the work
has gone into
Figuring it out.
Internal politics.
And then especially in high tech industries or you know, national security.
There are actual concerns.
about how to best give Pellenty the data they need without risking any
Espionage or just data leaks or whatever.
It's interesting'cause
It sounds like it's just more difficult than one would assume to actually get the data to even start the process of this.
ontology layer and mapping the entire business and
What's really interesting to me when I look at the numbers for Palantir is that there was actually a period of time here.
Where growth slowed down a lot. And that was
Pre AI, I guess, you know, pre-Chat GBT at least. And
And we just talked off the record about why that happened and
You said that the entire process of onboarding and using Palantir was so complex that it really hindered their growth. And so if you look at the growth chart.
now of Palantir's revenue.
You basically saw growth decelerate from
twenty nineteen through about halfway through twenty twenty three.
where year over year revenue growth was as low as twelve percent.
But then from there on
It's accelerated dramatically like a rocket ship and we're talking about a hundred percent year over year growth, you know, doubling revenues every year.
That's pretty insane and
I think to explain what happened, we should start talking about the four platforms that Pellant has to
They're calling them Gotham.
Foundry, Apollo and AIP and Gotham was the first platform the Palantir built and
It took about five years of, you know, consistent updating and improving. It was part of the first project that they did
for the government agencies.
It was built for, as I said.
intelligence generally. So that work started in two thousand and three and it was based on solving the problems
Primarily.
Leading to nine eleven and
Gotham is basically the part that creates the digital twins for defence agencies, you know, while Foundry is primarily a platform that was built in way later, twenty sixteen, so thirteen later actually.
And they build digital twins for corporate operations. And both of them sit on and now it gets a bit complicated.
Both of them sit on Apollo. And Apollo is just sort of
deployment engine. So you know, whenever a new update drops.
Apollo is shipping it to Gotham Foundry and also AIP and
You might think, Okay, well, why do you need a deployment engine? Is it so difficult to just get an update?
But if you think about all the silos that the data is sitting in, you know, on the one hand you have intelligence agencies, on the other hand you have
Huge corporations.
It's not just one click of hey, we have an update.
You can click here and you get it.
It's way more complicated than that.
getting an update into what is silo databases, you know, the
A lot of security behind that. So that's why
You need an entire deployment engine to some extent.
The real game changer was AIP, which is, you know, a very smart name for the AI platform, AIP.
That was, you know, an abbreviation that I think most of us could also come up with.
It actually changed the game for how Palantir approach customers and also how efficiently
the software can be run on each of those platforms.
Yeah, one of the things they did is they started to run boot camps, right? They basically invited a bunch of CEOs and CIOs from potential clients to showcase what Palantir can do. It's obviously
the potential clients had to bring maybe some of their data, probably not sensitive data, and then in a workshop over three to five days.
Palantir showed them some ways and exactly how they could improve their business and solve some problems for them. And so
I think the powerful thing about this is that every company thinks different from all the others, right? And to some extent.
That is true.
But because of that
Even if they generally know how strong Palantir is.
They still think it might not work for them. They might be hesitant. And these boot camps are really set up to prove that Palantir can, in fact,
Really help almost any type of company.
It's important to say that.
Telling you paid for those workshops out of their own pockets or companies
That attendant took on no risk except for, as you said, handing over data, but you know
Again, that was most likely not the most sensitive data in the company. I mean perhaps we'll talk about some
Inventory data or something similar.
With Jesse Goloff.
Showing it.
How Palantir can make the business more efficient and
You could probably say that this was the turning point that you alluded to when you talked about the numbers and growth going down to as much as twelve percent in twenty twenty three.
Because AIP made using and also unboarding.
So much easier the Palantir suddenly exploded and
Well onboarding is an important part.
was not so much the customer account that grew. In fact, customer account growth has actually come down from about fifty percent in twenty twenty four.
To about half of that lately.
But the money existing customers spent with Palantir
Increase significantly.
So net dollar retention, which is the metric that we're talking about here.
is basically measuring how much existing customers spend with you.
And that metric increased from a low of about
A hundred percent in twenty twenty three, which
Basically means they spend as much this year.
As they have last year.
To almost one hundred and sixty percent in the last quarter. So for every dollar spent last year.
The customer now spends a dollar and sixty cents.
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All right.
Back to the show.
Incredible thing with Palantir is that all this growth, which
It's pretty much unheard of for a company of this size.
did not come with any margin compression. It didn't take any major
marketing expenses or anything else that they really needed to invest in to scale the business dramatically to accelerate this growth.
Profit margins.
expanded alongside their top line.
Growth metrics, which is
Of course an explosive recipe for shareholder value creation. And so back in twenty twenty three when growth slowed down pretty materially.
The company was barely breaking even with a net profit margin of, you know, just about three to four percent.
Which is pretty modest.
Today though net profit margins are sixty percent or almost there.
And so you have this double engine of incredible growth on the top line.
Paired with this incredible
margin profile and a huge, I mean a tremendous amount of operating leverage.
I think that's the biggest swing in margin profitability.
that I've seen from revenue scaling from maybe any company besides Uber, which is one of our favorites.
Well, there's not one episode we don't have to talk about
The marginal inflection of Uber. But it's actually quite impressive, especially when you think about modeling these companies, right? We always think about, well,
Five years out, where do I see the margin? And you want to have those companies that surprise you to the upside on exactly that metric, right? We just did an episode on all of our winners.
One thing that we saw with many of them
Is that the margin goals that we set for three or four years time.
They basically hit next quarter. It's just a you know, they just completely change.
How they think about CapEx spending and all of that and also
Yeah, that's as you said, like a recipe for just success. And Palantir showed both of that.
to an incredible extent. And one thing you can do for especially software companies.
is look at the so called rule of forty. And that's often used again for software companies, but also some other companies.
We technically can say well.
you can generate high margins, right? We're not talking about
Let's say Dell.
All these infrastructure companies. So what you basically do with this
is you add up a company's growth rate, the top line, the revenue.
And the profit margin. So let's say you have a company that has
20% top line growth and a 20% margin. That gives you 40 in total. So you know, this would be a company that's hitting the rule of 40.
And that's considered a pretty healthy company and growth at a good margin.
Now for Palantir.
That number's not forty percent.
It's one hundred and fifty five.
Percent.
Sixty five percent of profit margins.
And ninety percent top line growth. And if you believe carb and you know the guidance.
This will get even better.
In the next quarter, and
I can't say it enough, this is an insane number, if you look at it the first time.
That's also the case because Palantir only goes for big customers with significant upsell potential.
Which is, as I mentioned before
But the overall customer count of only one thousand seems quite low. I mean Pellenty's average deal size.
is in the millions, and just this quarter they closed
two hundred and twenty deals of at least a million dollars.
Close to one hundred of those was at least five million dollars.
More than seventy deals.
Well at least ten million dollars. So
Most enterprise deals.
That we know from companies like Salesforce, for example, which is also a company that we covered here on the show.
They are in the, you know, five to six figure range, maybe a seven figure deal every now and then.
But penalty is only going for those big ones. They're not even trying to win those smaller ones.
Which is why the customer can't generally
It's not accelerating as fast.
As the volume. So
Gaining 42 new customers might not seem that impressive, but closing 220 million dollar deals.
That's pretty impressive, and that's why net dollar retention is so high.
And why Palantir is growing like a weed.
It's
Absolutely insane what they're doing.
Words really don't do it justice. And that's why the market has, I think rightly put absurd multiples.
On Palantir.
Because the multiples look absurd because they're based on trailing earnings and they're not.
accounting for or not reflecting.
The future growth that it seems like is
Very possible for Palantir.
And so
You had the socket time trading at like a hundred times sales, which again sounds ridiculous, and we'll talk about valuation.
Later.
But when you're growing at this incredible rate.
And there's such a large addressable market for you to continue to roll these services into.
It starts to feel a whole lot less crazy for the stock be trading at a hundred times trailing.
Sales emphasis.
On trailing.
We will talk about it later and I don't want to spoil anything.
But I can say that Pellantia is actually
As attractively valued.
As ever, even though the multiples look, you know, kinda scary at first.
Again, I really came into this with all sorts of biases.
There is more to it than you know you would think looking at a headline P, as you just said, and I gotta say still
I'm a bit mad because when I first looked at Palantir, which has been about a couple of weeks ago.
I thought this looks like a pretty good opportunity and then earnings came up.
And suddenly the stock went up forty percent.
And I gotta say that was a bummer, you know, we still sound pretty confident here and I think many people are surprised if they listen to this episode and
The value guys.
Suddenly like Palantir.
But again, when we go to the valuation and also, you know, all this stuff now that comes to just the qualitative effects of the company.
I feel like people will understand why we like the idea so much right now.
Yeah, it's hard to say that the valuation is
As attractive when it's jumped up forty percent, but also
It's a great testament.
So the fact that Pounter is just continuing to perform and absolutely numbers of any kind of estimates that people think of.
Are possible and so
Judge by CARP's growth outlook even after that jump.
There might still be an opportunity there, so
You know, talking about the latest
Earnings release.
My question for you is does Palantir report
Which platform is driving the most profit or is growing the fastest? Is there any insights that we get into that?
Unfortunately not. We only get to see the split commercial and government revenues, as well as a breakdown by geography.
And you can generally say that government and commercial growth are pretty much in line, which is something that I like to see, because it also reduces Palantir's dependency.
On government contracts which
Read my opinion.
can be a bit more of a volatile field depending on

That's a similar thing.
More volatile feel to play in and
In the last few quarters, commercial has actually outpaced government.
But this has shifted in the past, so
Perhaps we'll see that shift again.
Although would expect commercial to grow more in the long run, just given that the universe of customers is obviously larger.
And Palantir has improved significantly.
Which is what we discussed.
And the onboarding of customers.
So I would be surprised if we don't see that outpacing
Government in the long run, at least.
And also looking at the EBO of both sectors, so the
Earnings before interest and taxes, which is a profit proxy.
You can also see that Palantir
has a similar margin for both government and commercial, so it's not like
One of them is significantly more or less profitable than the other.
There is a significant difference here between growth in the US and the international markets and the US growth has more than nine X since twenty twenty three, which is
So absurd and
It's up a hundred and fifteen percent year over year this past quarter.
Well, international growth has definitely been much more volatile and is currently sitting at thirty percent, which
For any other company on the planet would sound very impressive, but for Palantir it does not sound very impressive and so
My question, I guess, is is that primarily because of Palantir's poor reputation internationally or
What really is the reason for that? Is there any kind of explanation there? I've read that Palantir systems.
were critical to helping the US government, for example, track down bin Laden back in the day. So if anything.
I'm actually kind of surprised that the company's even allowed to work with international
Clients and
even commercial clients based on the company's importance to the Pentagon and
Access to national security data.
We'll get to that later, but it's actually
Quite fascinating story of for example why Palantir is allowed to work with, you know, European customers and also the corporate space and
Generally, I would say it's a mix of things. So there's certainly a European resistance to being reliant on American companies, especially when it's about data management.
on the level that Palantir practices it. I mean both France and the UK
I've recently ended deals with Palantir to go for local solutions that
I think
Do not yet exist, but they want to build them.
We'll see how that plays out.
But there are also, you know, sales and market dynamics that we have seen in other markets, like you know, cloud computing or even now AI.
Well adoption just takes long when you
And given how closely Palantir has to work with its clients
You can probably also just
you know, not hop on a Zoom call and then onboard, you know, the client at the new software. So you need boots on the ground and
While Palantir has offices in most major cities in Europe
I would assume there's much less capacity there, compared to the accent.
I think cop's relationship and that's what I'm you know talking about earlier with other countries
Is also a bit difficult. I think he lately said in an interview
He just likes to support Europe's institutions, otherwise he wouldn't even make any business there because quote
The growth sucks.
So I don't know, think about that whatever you want, but I guess the fact that Yo has been growing much slower than the US.
Is another major reason for why you as numbers fall pal into you.
Arch is better.
And by the way.
On the last errands call, because we talk about guidance, for example, here.
Alex Cobb said that he will grow the business.
Anyway, equal.
Or above what the US commercial business is doing for the next
eighteen months and just for context.
That would imply a growth rate of about one hundred and fifty percent.
And even
If he only reaches, you know, let's say a hundred percent.
That would take Palantir to seventeen or eighteen billion dollars in revenue.
At the end of twenty twenty seven.
Which is insane.
Even if I don't exactly understand what Palantir.
Does
Or what makes them so special compared to other consulting and and data businesses.
The financial fundamentals and the business itself are looking really, really good, but
Again, I'm still asking myself this question of why is there no one that seems to be able to copy what Palantir is doing? I mean
What about OpenAI and Anthropic or the big software companies you mentioned earlier, Salesforce, ServiceNow or even Microsoft?
Couldn't they do what Palantir has done with their suite of products and especially the connections in the enterprise universe that they already have?
you would think they might be able to build on that and create some kind of ontology.
Similar to Palantir and so
We mentioned many times in recent episodes that
distribution seems to be one of the most important advantages.
In the age of AI.
you know, already having a wide spread customer base and as outsiders
Without any insights into Palantir.
How are we supposed to have conviction in their technological advantages? How do we even begin to rate the strength of their mo?
Yeah, this will be
Probably the most important point of this episode then.
It's not easy.
Primarily because
A lot of Palantir's advantage seems to come down to execution, which is
Always a bit difficult to talk about and judge.
If you you know, as you said on the outside.
But I will try my best, and probably the first thing I have to talk about.
It's
The switching cost mode. You know, we talked about how Pellantier creates the ontology and how long all of that can take.
Well, once you go through that multi month or even year long process
I think you will think twice about switching and doing it all over again and
Since Pallity has been a little bit more than a lot of the
By far been a first mover here, right? There is no competition.
that has come up even remotely in the last two years.
They just build a massive client base before anyone else can start and especially if you think about
Who are those customers?
It's not only
A thousand customers that you have.
But you have the biggest corporations and you have the government.
So those are contracts that if they are multi year long
I think it's just incredibly difficult.
to get into that sort of space and compete and
To just zoom in on that process again.
That alone can probably not be done by most of the companies. We talked a bit about it before our call here, but
As you can imagine when listening to an X cop interview for just
Two minutes.
This company
has a very unique culture. And I mean
I think we have a pretty unique culture here at T I P.
But it's something entirely different when your company is worth hundreds of billions of dollars.
It's just
not really a hierarchy as it seems, and people can do what they believe creates most value at the time. And of course there are limits to that, as always.
But that's how it generally seems to work. And then
When you look at it from just the product side.
It basically goes against all industry wisdom, right? I mean the way enterprise customers used to buy software tools.
Was to go to many different companies.
And then pick the best and cost solutions.
for each of the use cases that they look for a product for.
And then a company might use Slack because they prefer it over Teams, just as we do at TAP.
They might use Excel because they prefer it over Google Sheets, which is
What we don't do at TIP
And then Zoom because they preferred over Google Meet.
And you know, maybe Salesforce is the company that they have for their databases.
Because they preferred over.
Whatever competitors are out there, right?
So that's how you can think about it.
In the past, and Palantir sort of changed that dynamic.
So you usually have companies that build
Maybe one or two
Best in class. Tools and
sell them to as many different enterprises as possible. And so that's
lower value per transaction than what Palantir does, but it is much higher volume and so
It's sort of like Palantir is a more comprehensive
AI native version of Salesforce almost, at least in terms of importance to enterprise productivity.
Yeah, I I guess that's fair.
And then you also have a company like Microsoft and then you have Google too to some extent that
put out many tools where only one or two are again actually best in class, but the others are
good enough to be sold alongside them as a bundle and so
I guess I wouldn't it be possible for those companies
to level up their entire bundle and
Connect it with AI similar to what API has done for Palantir, and then basically offer a similar form of ontology.
It sounds like Pound here developed a really specialized machine learning
Technology said.
Well ahead of the AI craze of the past few years.
And primarily targeted it.
at the government and military.
But now growth is exploding as they've rolled out this model to commercial customers. And so
I just can't imagine though that companies like Salesforce
IBM.
Google, Microsoft, many of the biggest names in tech.
I can't imagine that they're just gonna take this lying down. I've seen estimates of Palantir could have as much as
a two trillion dollar addressable market.
And if that is even remotely true.
It's going to surely have some serious from some really powerful companies.
Chasing after those same dollars.
I think it's safe to say that
Panity has not yet been tested by a competition, but I also think that it's easier said than done.
To switch from building to us that are
Just good enough.
To tours that are actually
Best in class. And not only one two only we're not talking about Slack, but
A tool as comprehensive.
as well parenty building.
We said it both our Google and especially our Microsoft episode.
That's what they do, you know, good enough tools that they can just put into the ecosystem and it works because they sell it to these enterprise customers. And I should also say that.
Pallanti is not taking their market.
So Google can sell their bundle just like they did in the past and Microsoft can do the same.
So they're not necessarily competing, so you don't have to invest
Just as a defense mechanism, basically.
You often hear me say that.
I don't like to bet on companies that compete with the likes of Google, Microsoft or Amazon.
But I think in this case.
I don't know, I think they're way too bloated and just not flexible enough to compete with a company like Palantir on that ontology front. I mean
I told you before that.
If you ask yourself
Which of these companies should have actually sent out FTEs, these forward deployed engineers?
Two enterprise customers.
To set up their tools.
I think none of them would have done that. All of them would have settled for keeping the engineers in house.
and deploy them for the software solutions where they make sixty percent margins, right? And
I mean, Microsoft is trying to do that right now, the you know, billing and ontology layer.
But
I don't know, looking at it and by the way they call it Fabric IQ.
I would call it an attempt at best. I think it makes sense for them.
Just to better connect all of the different products they have.
But I don't see rivaling Palanti any time soon, and this goes back to the sort of
Good enough. No, you're good enough to connect all your tools.
This is so far away from what Palantir building for the highest class customers.
But I think it's a reach.
To say that this will compete with Panty any time soon and
I think the one company
where I can't really figure out whether they would become a bigger competitor eventually.
a service now because it's the one company that we discuss here now.
That I haven't yet deep dived, so my understanding of service now is
significantly below the level of the other companies.
From what I understand though.
Service now understands itself as you know a SaaS company that becomes AI native, right?
And they actually have a lot to lose if they would have, you know, this two trillion dollar market that they are just not participating in.
It's very good at workflows that are based on
I think what they call predefined relationship data. So
How can I explain that? I would say that predefined relationship data is
You already know what you're allowed to do.
And now you just put it in a sequence.
that you now know, hey, this thing is allowed to give access to this thing.
And it makes sense to now put it.
This thing.
Just after that, so you sort of get this linear line.
of what are you allowed to do?
Pellenty is doing
It creates those relationships.
You know it's saying.
We know that there are these things, you know, X, Y, Z.
And they have permission to do certain things.
Now how can we connect that?
To the entire rest of the map.
So that it makes sense. It's just hard to imagine, but way more complicated than what any of these SaaS companies are currently doing and
I think that's just a complex way of saying
Service now is good at managing data that is already set in place.
With penalty is basically
Taking raw data from all sorts of places and then creates a relationship.
In all of that itself.
Well maybe I'm naive, but what about companies
that maybe can use Claude.
Co work and
Chat GPT
Kodak on these different
AI native tools.
to actually recreate this ontology in-house, right? Do maybe AI enables
them to map things in a way that
only Pallancher was able to do, but now that technology's been more democratized and I guess
Building here doesn't exactly mean doing all the coding work, but I just mean
Sort of what you described in the beginning.
Finding a way to group all sorts of best in class services.
and redefine what the best relationship between them would be and connect them in different ways. And so essentially
You would just be rethinking how things are connected inside your organization and
Maybe you won't be able to do it as well as Palantir, but for a fraction of the cost.
And with different AI tools.
Perhaps it's good enough.
And actually this time
Good enough would actually be good enough because I think if you get a tool from Microsoft
That they think is good enough.
It's not actually good enough for your corporation, but if you build it
In house, you know you know what level you need to reach that actually makes sense for you just for context, in case anyone is asking themselves, well

Wouldn't they have done so already?
I think the reason it might be more popular today is that
Talentier showed companies just how inefficient they actually are.
With their data management.
And before
It just wasn't as obvious. I mean
Everybody sort of knows that there are things that are, you know, not the most efficient.
But it always feels kind of unchangeable, right?
And now that AI is there, and seeing what AIP is doing for Palantir.
I think that just makes them realise.
There's so much more that they can get out of their data.
and so much more efficiency gains that they could get.
And also new cost savings, which is
One of the biggest things that customers of Palantir are actually reporting about in
All that said, I think in house solutions are to some extent wishful thinking, and we already went over why, basically when I
explained how Pellant is going into these companies with the engineers.
And how they implement their product.
There are dozens of different incentives for people working in the same company.
In different departments, right? So
Again, that's why I talked about hey, Pellantiers going out there and befriending, for lack of a better word, the C suite first. And then the project workers, instead of the middle management.

where a lot of the resistance for new stuff actually comes up. And then if you would think about
Who is building these in house solutions?
Well it almost has to be the middle management, right? The CEO can maybe say, That's what we wanna do.
But then the middle management has to take that idea.
And deployed in their own department.
And I don't think that will happen. It hasn't happened in the last decade.
I think it's still unlikely.
I can see why.
That worked really well at at a smaller scale, but it doesn't really sound scalable to me and I wonder if
Something is lost in translation as they change their playbook to accommodate
more types of enterprises. And so
I mean you can't befriend the C suite of every single customer you have if you want to be a trillion dollar company.
And to your point though, I think it does make sense as a middle manager you
Don't want to rule over a smaller kingdom or suddenly have someone from the outside coming in, changing up your entire department and and telling you what to do. And so
As the CEO or CIO
You care more about the overall performance of the company and as a project worker.
You just want the best tool.
at hand so you can do your job as efficiently as possible.
I think they noticed that it's not that scalable in twenty twenty three, when you know the growth it has going down to
Twelve percent.
And that's why they started the workshops, you know, where they said, Well
If we go out to all of those companies
And we prevent the sea suite.
That takes a lot of time, you know, time that is inefficiently spent to some extent.
So why do we not just give them proof of concept?
We invite them after Pellenty was better known in the enterprise space.
Now they are coming over, so they're already sort of in the realm of becoming customer of Palantir.
Now they're in the workshop.
Now Panity is showcasing the product.
And that's how you, you know, scale significantly better. I think I heard that they had over
A thousand workshops already and
Mind you, there are CEOs and CAOs sitting in all of them, so you can sort of see the scale.
Of this new approach.
What about?
Anthropic and open AI just to bring them up again. I mean if there's any company that should have the best AI capabilities.
To get this done, it would be them.
I know Anthropic in particular is is focused on taking more of a B to B approach.
Whereas open AI has
hundreds of millions of users and that's been sort of a actually a problem for them because it's so compute intensive.
to create responses to very basic queries from everyday
People.
But they very much want to move into
Providing more enterprise based
solutions. And so
I guess with that
Sad.
I'm wondering now what model does Palantir even use? Do they have their own LLM?
Are they using open AI and Anthropic themselves? And you know, I wonder what the competitive dynamics between them are and how that could evolve over time.
Yeah, that's a good question because it's actually an important point. I mean
Palency does not have its own model. It uses a variety of models out there and
It basically depends on the customer which model they want to use and maybe also they change between them. So
Pellenty itself offers, you know, Claude.
She PT, but also Gemini, Mystery, Lama and
Basically whatever model is out there.
And I would say the magic of Pilanthe really comes from the context that the ontology creates, you know, again
Imagine you have this map.
And before, if you were, you know, an employee of a company who uses this.
You have to go manually to all of these data points, to all of the things that are possible within this map.
No.
You're just typing in a prom. You're saying, Hey, I'm looking for getting this aircraft to another tower, right?
Then just typing it in there and then whatever model you choose.
It's doing all the work for you. So it just simplifies things and that's how I would think about it.
So
The magic of Pellantier really comes from the context that the ontology creates, so
I think we actually have a video on our YouTube channel that is called A Masterclass on AI by one of our mastermind members.
who understands LLMs and the entire space much better than we do, and he actually has an argument.
For why some models feel so much stronger than others.
Although they're kind of similar into Anthony.
I was say we'd just show it here because he makes the point pretty good.
The common word uh in parlance for us is what is called as an harness. So we call this as an agent harness.
I
And agent harnesses
Access to the
data that's sitting on your desktops or some particular
Equals to where the data lives in this case.
In some cases, for example, you know, Jeff you were asking what what happens in Palantir?

The LLM is still the actual reasoning and planning part of it.
Like
But the agent harness now involves data.
That comes from your databases. The ontology now becomes a thing.
that the age that you can provide to the agent can say, here's the ontology of how my data sets look like.
Thank you
Here's where I have my inventory data, here's where I have my supply information, here's where I have my
XYZ information.
And Valentir simply builds an ontology on top of it.
Now the agent can look at that data and then reason about it right now.
Right.
That's why Rem can look at the data and reason it.
The whole thing is what is called as an agent at this point.
So
Just as he said, you know, the context is very important. So Claude feels much more powerful than, for example, Chat GPT.
Just because they do a way better job of giving context.

And it's kind of similar with Pountier.
It's ontology is basically feeding context, so that is
Data governance tools.
Gar rails to which ever LM is used.
And thus the LM stops hallucinating.
And they make the model much more powerful.
Because it's basically
A custom tablet solution.
for the use case at hand.
I think that makes sense, but at some point after OpenAI and Enthropic have IPO'd
They're gonna be trying to justify these trillion dollar valuations.
I would think it would be very tempting for them to start a business where they basically offer
their service to customers in a similar way to what Palantir has done and maybe creating a similar
Ontology. I know we keep using that word a lot today and
really taking advantage of their own models in in the context they have and
The fact that they do already have, let's say, a lot of existing enterprise relationships and
Basically leveling those up. So
How do you think about that? Is that something that is a real threat to Palantir?
I guess it's a problem in theory, yes?
But I'm also asking myself
Why should any business
Want that over penalty. I mean
After all.
You would now have pretty much the same product, assuming OpenAI and Etherep are actually able to build such an ontology layer.
But
You're limited to just one model.
instead of being more agnostic. And if you think about you know a corporation and what that means.
Basically all the pricing power then sits, for example, with Anthropic.
Well now, if you know the anthropic model is too expensive
Well you can still use Palantir and you just use ChPT.
And if Chet GPT is too expensive.
You just use Mistral.
So
I think it's just a way more diversified way. You could still say, you know, especially looking at Punties margins
Well the pricing power sits with Pellet right now.
But probably we will see that come.
Down over time, especially with, you know.
Maybe Anthropic or Open Air will actually start.
And put up a competitive business.
I still think that Punty would win.
But certainly we haven't seen the marches being tested by a competition, so
That's definitely something we have to look out for.
Generally.
LXCop is frequently shooting against Anthropic and Open AI and
basically warning about those companies, you know, and
How you shouldn't give them your IP and your business model.
Because these frontier models.
Sooner or later.
We'll just take over your business then.
Obviously, Alex Carb has a major incentive to fuel fear among corporations because those are his potential customers.
But
I would also say that doesn't mean he's wrong. I mean whatever you put into JetGPT or Claude.
They can take it to train their model and
Who knows what the actual policies are for saving your data. I know that
I personally sometimes ask it, hey by the way, if I send you this PDF
Will you save it? Or is it just gone when I delete the chat?
They never give you a full answer to what they actually do with the data. So
I can say that I take the liberty of not caring too much.
But most of the time it's you know not that important information.
And probably it's a bit naive on my point, but
If you're a company and you know you have important IP and you have a business model to protect
You should care much more about your privacy and safety than I do.
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Alright.
Back to the show.
I guess the question is whether you can trust Palantir.
And AK Carp and Peter Teel.
With your data and
Perhaps we can talk more about the management team than in general, without
Getting too political carpental are are both very controversial people, as we've alluded to, and you mentioned earlier how that can actually impact, for example, the international business.
First of all, I should say that
I don't know if you can trust them, but Palantir's customers
keep all the rights to their data, of course. So why parent here, you know, gains a lot of insight into

It's a bit different from just using Cloud or Chat GPT where they more or less own everything that you feed to them. But getting to the management part.
As mentioned before, Alex Carb has been running the business as CO for twenty three years now.
Steven Cohen, who built the first prototype back when he was still a student at Stanford.
It's still part of the board.

But the entire founding team
You could say is involved.
But not as actively as Alex Carb. So if you now think about just one person.
And pound here.
It would be carbon.

The vision.
Might be his and uh just for context.
Carpentier met at Hoverfort, the law school of Stanford, so
Carb then went to again, I mentioned before my alma mater in Frankfurt and then he actually learned German and lived there for about a decade, which is
Significantly longer than I thought and
I think he mentioned that he was primarily interested in the Frankfurt School of Thought, which
You told me you've did some research on that after I told you about it.
It's basically a philosophy that
Analyzed how modern
Capitalism mass culture, which was also a big thing.
And fascism.
Shape human psychology.
And social control and
Cobb, just like Teal, was extremely interested in
Just
I think you could say understanding fascism and
I'm not quite sure whether his interpretation of the Famford School.
Actually aligns with the original idea, but
It is quite important to understand.
How he thinks about it.
just for you know getting the vision of why pality exists.
And acts the way that it does.
This has gotta be the most.
philosophical we've ever gotten during a company analysis.
Hello.
I gotta say, I keep it brief on the details. I tend to get lost in that stuff just because I'm
A slight interest in it, but I also gotta admit that it has been a while since I actually read a lot of the theories of the Frankfurt School. Basically
couple of years ago when I was still studying there, but
I would say it's also not too important.
to actually get the details the main idea that I found so interesting.
Is that cop is thinking that
American thinking.
Whatever that means.
Cures nations of fascism and that it's a
Sort of moral obligation.
For Silicon Valley to return to its roots and you're
That basically is the US defense system and that goes back to your point earlier in terms of
Why does the CIA have a venture arm? Well,
In the early days of, you know, the Silicon Valley
Most of the companies.
Were founded, especially these
early semi conductor companies and the computing companies
Just because the Pentagon paid for them.
Then somewhere in the last thirty years, that's
Cop's theory.
The industry decided that
Working on national security is sort of distasteful.
And that they should redirect the best engineering talent.
In the world towards consumer apps.
And advertising and
One of his examples was Google, which, you know, is the biggest company in our portfolio, so we're happy they did this sort of
switch, but his example was Google walking away from a Pentagon contract in twenty eighteen.
After employee protest and
He claims that this has been a mistake for both sides, actually, so tech lost any sense of
What he calls a larger purpose.
And the government lost access to the best engineers and the best software engineers in the world and
I think he partly believes that this was
Part of the critical theory that came out of Germany and Europe where
Philosophers were more or less
critical of technology and innovation because well
One of the most advanced nations in the world.
Still started the second world war and
Cops things and this is the last point I will mention here.
It is
defeated mindset that the critical theory had in many aspects.
Also came to the US, although
They won the war.
And anyway
Longstory short.
Hell aren't you?
Is now supposed to bring back.
No, this American tech.
To its roots.
to the defense of America and the West and their allies generally against attacks from the outside.
It seems like a very ideologically driven company, which is sort of weird. I we we don't usually get into this terrain in our episodes and
I suppose when you take that context, it makes sense why CARP would do
Business in Europe.
He's not really thinking about the economics, right? He said that gross sucks.
But
Mm.
is seeing it as part of a mission to support the West.
Whatever that means.
I guess so.
I think it's kind of
Up to you whether you believe all of that. I mean
Parity is still generating quite a lot of money in Europe, so
I don't know. I doubt that altruism is the primary motive for making business there.
I suppose.
Peter Thiel has the same or some sort of similar mission.
More or less. I would say I don't know whether they agree on everything politically, but that's also not really the topic here. I mean we only discuss all of this because
There were view.
It's important when you build a company that is taking on some of the most sensitive defense contracts.
In the world and
Right now. I think
I could say that few investors care about Palantir's reputation outside of the investment world.
But when people are actually afraid.
to invest in meta because of its public perception.
A company that is building an app called.
Migration OS for ice.
Definitely comes with much more reputational and regulatory risks.
If you ask me.
In several countries, courts have actually ruled that the way Pallantier software connects and automates data.

There's a lot of potential for problems.
Internationally.
Probably also in the US sooner or later.
They're
Gotta be two angles.
To investing in Palantir. Uh it's a personal one where you have to decide whether investing in the company
aligns with your values. And then there's a question of how
This reputation that Palantir has can actually affect the business and cash flows and
So it's similar to thinking about Tesla.
And the political impact that Elon Musk has had on that business. So
As you hinted at that.
France's internal security directorate replaced Palantir.
Germany's domestic intelligence service.
Appears to be likely to do the same.
You had the mayor of London.
blocking a police contract that would have been worth fift million pounds. So
Those are some loss revenues for Palantir already, but to be fair.
As we've gone through the numbers earlier, this is just a drop in the ocean compared to the business that Palantir now generates.
And fact of the matter is that
Europe is spending a lot on defence right now and
If they can't build a viable alternative to Palantir themselves, I believe that's sooner or later.
I would at least be surprised not to see deals with governments in Europe more and
I don't know, I'm a bit skeptical that, you know, I think Germany and France are sort of building a system or an AI platform to challenge Palantir.
knowing about our data loss.
I'm not quite sure if that will turn out successful.
Moving on.
From politics and philosophy.
Let me ask you a question about what what feels like a lighter topic for investors, which is
How does the capital allocation look?
Uh Palantir.
Well, Pellanty has a major cash pile. They hold more than nine billion dollars in cash and there's no debt on the balance sheet. Not long term, not short term. So
They could return all that cash to shareless if they wanted to, but I gotta say that doesn't seem to be on the plan.
At least not any time soon.
They don't do any MA either.
And they terminated the share repurchase program that they had in place.
In January of this year.
I actually think that's a smart decision because
I would rather have the opportunity for more opportunistic buybacks.
In the future.
Instead of buying back stock when it's trading at new.
triple digit sales multiples as it has in the past.
Yeah, the problem of having no buybacks is that stock based compensation is running at thirteen percent of revenue.
So shareholders are
Getting diluted.
a pretty significant rate. And while the trend is
moving in the right direction. I think that's mostly because revenue is increasing so much.
Two years ago the stock based comp was
As high as twenty percent of revenue. And so
That is a real hit.
to shareholders and shareholder value.
They're
Basically slice of the pie.
Against their own consent.
Is being shrunk down.
And so
You know, as the pie keeps growing bigger and bigger, if you have a smaller slice, uh you know, financially it can still work out.
But you are being deluded and
You know, like I said, I'm sure they didn't care that much about this solution when the stock was going from twenty dollars
to a hundred and seventy dollars.
But as we're looking forward and thinking about our decision today, it's definitely a headwind.
And as you said, on the other hand, I'm not sure how excited I would be to see them buying back stock.
At one hundred and fifty times earnings.
They're a hundred times sales.
You know, overpaying to retire shares. If you believe that pounters overvalued.
That can be quite destructive to shareholder value, even if it's somewhat mentally reassuring.
See hey, there's buybacks going toward offsetting dilution.
Again, like I said, if if you're dramatically
overpaying well above intrinsic value.
You are destroying value for shareholders, which is
You know, a little abstract, uh a little bit academic, but it is
I think there's truth to that idea.
And by the way, if you're asking yourself, well
Aren't you guys bullish on Pellenty? You talk about that for sixty minutes now.
So wouldn't you think that it's attractive to buy back shares at today's prices?
I should really clarify again that last year and the year before then
The story was completely different. So Pellanty actually changed compared to last year because
Growth has accelerated so much.
And the valuation has come down that
I do believe it's attractive here and especially it has been before the earnings release.
Just a year ago, or two years ago
I considered it, rightfully so, I believe, to be one of the most expensive companies in the market and it probably would have been a good shot.
But what I asked myself in terms of capital allocation is
Why does Pellantine not invest more money in their workforce?
Especially given that they always say
They have so much more demand for their product and they keep generating more revenue per user.
So I just feel that an investment
in the workforce would seem like quite a good investment.
What Pellantia does instead
And I talked to you
Before recording about this I
Don't fully understand it.
Is that it partners with the consultancy firm Accenture.
And basically
They use Accenture employees.
As forward deployed engineers, so Excentia trains its own consultants.
on founding an NIP, so they obviously have a better idea of
What penalty is in the average extension consultant, but still
Those people then
Do the deployment work?
At the customer side and
Palantir sells the software license, so
On paper it makes sense, but if they keep the high margin revenue.
But
I feel like that doesn't fully make sense because you feel like pality is
Only hiring these.
highly talented people.
Because a lot of the m work that they do.
is going to the company
Figuring out how it works, doing all the politics.
and then getting the ontology.
And now it seems like
You can just get a thousand, you know, nothing against people who work at Accenture. Please don't misunderstand that.
But you can just get people from Accenture who don't understand Palantir.
To the same level than Pellantier engineers.
And they do the work for you and
Again, it's not a small amount of people for context, Palanti has about four thousand and five hundred employees.
Accenture.
As close to
eight hundred thousand.
And they already have more than a thousand foundry specialists.
I'm stunned.
That there are companies out there employing eight hundred thousand
People that
I can't even fathom that. I don't know where you even begin and oversee that many employees and so
Yeah, it probably makes a ton of sense why Accenture
Would be looking for outside helper.
Why?
Palantir would be looking to tap into their network.
of employees, but
You know, how about we
transition to talking about valuation now. I'm very curious to hear how you think about this as a value investor.
But also as someone who seems quite excited by Palantir's.
technology and the growth.
It is really riveting. And so admittedly
I would've.
dismissed Palantir as being a hopelessly overvalued
Meme stock.
But you already

Maybe the chance for legitimately attractive entry points in this stock.
Especially with how volatile it is.
I would surprise myself, you know, as I say today multiple times in the episode then.
Obviously again.
You don't have a value stock here, I'm fully aware of that.
But you really gotta put the valuation into perspective considering the incredible growth. And if Cobb is actually right about being able to grow Palantir.
Overall.
at the current rate of the US business until the end of twenty twenty seven.
Well then the price to sales ratio would decline from where it is today, which is about sixty.
to about twenty.
And
then it pretty much all depends on, you know, the growth rate in twenty twenty eight and twenty twenty nine.
And of course this is speculative, but Cobb has always delivered up until now on the guidance that he gave and
Of course you could argue this is not only a guidance.
Something that he said in an interview.
But I would just assume or I would take it for granted here that
This is what he actually aims to achieve and
Analysts have massively under SMN appoint here again and again.
And I should say that if you think a world press resales is not the most useful metrics
Generally, I agree with you.
But I think it makes the point here quite well because Pellenty has incredibly high margin, so
When the average enterprise software company
It's trading at about, you know, seven times sales, on roughly a twenty percent operating margin.
That's a thirty five X on operating profit.
If Palantir
On its assumed twenty twenty seven numbers.
would be about twenty two times sales.
But it has a sixty percent.
Margin.
That would also result in thirty five times operating profit. So
The massive growth.
And the margins make Palantir relatively at least to other software companies.
Look more expensive today.
Then it actually might be.
Yeah, it just shows.
The power of having high operating leverage and higher profit margins.
And again, like you said, it's not a value play, but it's also not as ridiculously priced.
As
I would've thought.
I think the only thing we can do to convince people here is actually jump into the model. So
I built two base cases this time. One with the numbers that car predicts until the end of twenty twenty seven.
And one with the analyst estimate. So
Of course it's a five year model, so everything after twenty twenty seven is still obviously my own estimate.
But still.
In the first base case, using carbs growth rate of about 150%.
For next year.
I DK growth after that personally to sixty percent.
And then fifteen to twenty percentage points.
per year lower, so we would end up with you know, twenty eight percent growth in
twenty thirty one. You know, just summarizing that because it's a lot of numbers.
The revenue Kega in this model would be in the high fifties.
For the next five years.
For comparison though.
The second base case
Built up on analyst estimates works with a revenue cake of only twenty two percent.
So I keep margins in both cases relatively stable.
Which is about sixty percent operating margin.
You could say
Well, if there's more competition, so let's say Athropic gets into the market, Microsoft gets into the market.
The margin will be pressured.
It's possible.
But at this point it's completely speculative whether that would actually happen.
So let's just assume a sixty percent margin here.
If you then go with the analyst estimates and you apply a thirty X exit multiple and a ten percent discount rate,
The twenty percent marginal safety, which is what we usually do.
you would get a fair value of ninety dollars.
If you trust cop's estimates and slightly higher growth afterward compared to analysts,
And when I say slightly higher.
We're talking a difference about ten percent points per year.
So you could argue it's significantly higher.
The fair value.
It's at about two hundred and forty dollars a year. So significant difference.
And way more than the stock is currently trading at.
Looking at your model, you also adjust for dilution with share count growth of one percent annually, even though we talked about stock based comp.
being in the double digit percentages and so
You don't have buybac or dividends either in your model, so
It seems like you don't think Palantir will will be paying cash to shareholders or doing any kind of capital returns.
Yes, I think you will not see any buybacks or dividends any time soon.
By the way, I've also done the model with more dilution, so one point five percent, two point five percent a year.
Just because of the growth, it doesn't change your return massively.
Especially in cop scenario. If you think just about the analyst estimates
there's more of a change and again you can just download the model. We'll have a link to it in the show notes and also
We also have a newsletter.
about Palantir coming out today. We're also linked to that one.
In the show notes.
In that newsletter.
We'll go through the model in more detail.
And you can download it. And if you do that
You can adjust.
All of my assumptions in the way that you want. But yes, to your point.
I think of a dilution of about one to one point five percent a year.
Which is in line with the last couple of years, I should say that.
And no buybacks and no dividends.
I gotta say, you got me excited here. I didn't expect to end up liking Palantir.
At all. But I'm
I'm just so intrigued.
It's maybe one of the most interesting companies.
that we've come across from both a financial perspective and also a non-financial perspective. When you get into the philosophers and
The types of projects that they worked on, right? We were talking about a company that helped track down bin Laden.
So it's just really unique and yeah, after
Today's episode, I can definitely understand why you have felt some excitement too about looking at Palantir. So with all that said.
I assume
that you are gonna recommend not investing in it, nonetheless.
Well, I was closer to wanting to invest before earnings, I gotta say that, but
Even then, and this sort of goes back to the learnings that we discussed in our biggest loser episodes.
Palantir's outcome is almost completely dependent on its top line growth.
And one thing that I like to do when I look at companies that are growing rapidly
And everything looks great at the surface.
Then I come up with a scenario in my hat, which basically goes like this. So
I would assume.
The next earning support is coming out.
And then growth.
is cut in half from what people are expecting. So let's assume, you know, Carb's outcome
A hundred fifty percent growth.
Suddenly.
You only get seventy five percent.
What I think
I'm confident enough to be able to figure out and explain.
why the company grew significantly slower.
than people anticipated.
I think for example, if you would have looked at Lunar Lemers growth slowing down.
It wouldn't have been that difficult to figure out why.
In the end they sell less clothing and you know the reasons for that
are quite straightforward. Either you have customers going to a competitor.
Or there's a recession and every brand has problems selling their clothing.
If you think about you
Payment companies.
It's a bit less straightforward. It's also about, you know, competition or macro.
But it's not as easy to track which one is actually the answer because getting the data is a bit more difficult.
But still you can do it.
And then there's a company like the Trade Desk.
Where I have
Absolutely no clue why the top line growth is declining and
I also have no clue where the bottom would be.
And
I think if I'm being honest with myself.
Palantir has to fall.
into that category. I think when the business is doing great and it's growing.
Everyone has this
illusion of knowing and understanding why it's going so great. But if that was suddenly changing
I'm just not sure how many would still claim to understand the business at well.
I think the entire story here comes down to
Does it make sense for me and do I fully understand the technology behind it?
And the honest answer is no.
And just to make it clear, I feel like you don't need to understand everything.
If you, for example, work in the sector and you have a much better understanding of how the industry generally works.
I think that's not the case for you and I, Sean. I think the two of us
What
probably be better off sitting on the sidelines just admiring what Palantir is doing.
And not investing today.
Surprise, surprise.
The value investors here.
Two guys who are very inspired by Buffett and Munger didn't want to invest in Palantir. I don't think that's a shock.
But also, that doesn't mean Palantir won't continue to do well.
If anything, my gut feeling is
The company probably will.
Do very well. And probably the stock will too. I don't know m about from current prices, but
If there's a sell off in it, that could be
A really interesting
entry point for folks.
Who are
Willing to speculate more and
As you said, if you don't really understand what drives the business, then to me, you're not investing. To be an investor, that really means you have to
think like an owner and feel like you understand all of the variables affecting the business and so
If you're just buying a stock and you don't have that owner mindset and that understanding of what is driving things.
Well then you're just speculating.
And and speculating can be profitable.
Or it can be quite costly.
But our aim, first and foremost, is to be disciplined investors and so
And if we're going to adhere to that, then yeah, we can't invest in something like Palantir, even if it's very exciting.
At least not today. I think it's one of those where, for example, with the trade task.
I just felt like
It's very difficult to understand and maybe there's also not a reason to do so because the stock is not or the company is not doing that well.
I think if Palantir keeps shoving along like this.
And we have some people, especially in our massive community
that will most likely understand this business much better than the two of us do.
So
I could see myself with, you know, a couple of talks, understanding the business a bit better.
Seeing even more proof of what they do.
even better understanding what the ontology means and whether that is actually
Copyable for other competitors.
I think all of that means
I could have it on the watch list and at the right price and especially the right understanding of me and the company.
I could see us investing in it generally. I wouldn't say that it's the stuff that I would never put money in.
It's primarily about how well do I understand the stock right now.
And also
where's it trading? Again, even at one hundred thirty bucks, which was you know the place before earnings.
I think it was not cheap.
But it was kinda reasonable if you believe in the growth.
I think today's
A lot of that opportunity is basically gone.
And you know, if you see the stock below one hundred dollars and nothing changes.
Count me in and I would be way more interested to
Kind of say it with Buffett in terms of, you know, your
philosophy of you know speculation and investing, Buffett said quote
The line separating investment and speculation, which is never bright and clear, becomes blurred further when most market participants have recently enjoyed
Triumph.
Nothing's today's rationality like large doses of effortless money, and I would say
That you have a lot of people in Palantir who made a lot of money and I'm glad for all of them.
But many of them might not understand this talk to at least the extent that the two of us
would want to understand a stock when we invest.
Again, it's up twenty four hundred percent.
From the twenty twenty three lows.
So it's only natural that some people are okay with some blind spots in their thesis.
And with that
I hope you guys enjoyed today's episode as much as we did.
See you all in the next one.
Thanks for listening to TIP.
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