Topline
The best-performing stock on the S&P 500 this year isn’t Nvidia or Tesla, but rather another, more under-the-radar name benefitting from the artificial intelligence gold rush: Palantir Technologies, the data-hungry defense contractor run by eccentric billionaire Alex Karp.
Palantir stock’s 2024 rise has coincided with an AI boom.
Key Facts
Palantir is the top-performing stock on the S&P of 2024, returning 369% year-to-date through Monday.
Though Palantir only matriculated in September to the S&P, the most commonly cited American stock market benchmark covering 500 of the most valuable companies across industries, much of its gains have come over the last three months.
In addition to a jolt from the broader Wall Street frenzy toward AI names, Palantir stock has enjoyed a massive boost from optimism about increased defense spending under the incoming Trump administration, with shares of Palantir up 58% since Election Day.
Its 166% rally since the S&P announcement is easily the strongest return of any S&P company over that period, according to FactSet.
Palantir’s rise sent its market capitalization from $37 billion to about $180 billion, a ninefold increase from the $20 billion valuation it fetched at its 2020 initial public offering.
Nvidia is the top-returning S&P constituent listed on the index for the entirety of the year, as the primary architect of the semiconductor technology powering generative AI advanced 172%.
Tangent
Palantir is 2024’s third-best performing stock of any public company worth at least $50 billion regardless of S&P status, trailing only marketing software firm Applovin (756% gain) and bitcoin hoarder MicroStrategy (477%).
What Does Palantir Do?
Palantir uses AI-powered analytics to provide solutions to large swaths of data. The company is a “beneficiary of rapidly growing demand for Artificial Intelligence (AI)-platforms in both commercial and government end-markets,” explained Bank of America analyst Mariana Perez Mora in a note to clients earlier this year. Palantir is perhaps most famous for its work as a contractor for the Department of Defense, but its clients also include the likes of General Mills and United Airlines. Government contracts accounted for $408 million of Palantir’s $726 million in third-quarter revenues.
Surprising Fact
The sub $1 billion quarterly revenue may appear odd for a company worth more than $150 billion, and for good reason. Palantir is by far the most expensive stock on the S&P by its price-to-sales ratio, a metric comparing companies’ trailing 12-month revenues to its market value. Palantir’s 67 price-to-sales is nearly double the next closest company, Texas real estate giant Texas Pacific Land Corporation at 37, and it’s more than 20 times higher than the S&P media price-to-sales of 3. But Palantir’s “dominant position in the AI-powered software market…should support revenue growth and improving profits,” predicts Perez Mora.
Contra
A Wall Street favorite for its lofty profit margins and top-of-class technology, Palantir is not without its controversies. The company came under fire from human rights groups for its involvement with the Immigration and Customs Enforcement ahead of its IPO, with Palantir data linked to raids on people living in the U.S. illegally. Karp said in 2020 his company’s analytics have helped the ICE find “people in our country who are undocumented,” adding he sympathized with the “legitimate concern about what happens on our border, how it happens, and what…enforcement look[s] like.”
Forbes Valuation
Karp, Palantir’s cofounder and CEO, is worth about $7.5 billion, placing him within the world’s 400 richest people. Another cofounder, Peter Thiel, is the 148th-wealthiest individual with a $15 billion fortune, while the other two cofounders Stephen Cohen and Joe Lonsdale officially joined the billionaire ranks last month.
Tangent
Karp describes himself as a believer in “populist-left politics” and supported Vice President Kamala Harris in the November election, but his cofounders Lonsdale and Thiel are among the most prominent bankrollers of right-wing politics. “Daddy’s home,” celebrated Lonsdale following Donald Trump’s November win, while Thiel has donated tens of millions of dollars to Republican causes over the last decade. “Because Peter had supported Mr. Trump, it was actually harder to get things done” at Palantir, Karp told the New York Times this summer about Thiel’s public embrace of Trump in 2016 (Thiel did not endorse a candidate this cycle).
Crucial Quote
“It’s a rare cult with no sex and very little drugs and we’re not poisoning anyone,” Karp quipped to hedge fund billionaire Stanley Druckenmiller during a discussion at a JPMorgan Chase event earlier this month, referring to Palantir’s close-knit culture.
Further Reading
Read the full article here