William Blair Reiterates Outperform on Palantir

William Blair analyst Louie DiPalma reiterated an Outperform rating on Palantir (NASDAQ: PLTR)

“Our government Dotted Line tracker and media reports suggest that the Pentagon continues to go all in on Palantir’s Maven Smart System (MSS).

Our tracker indicates that MSS is by far Palantir’s largest overall contract, and the Department of War program is trending toward a billion-dollar annual revenue run-rate across numerous contracts.

All signs point to continued strong growth over the next nine months with MSS expected to achieve program-of-record (POR) status.

As a result, we believe shares will likely trend back toward their previous high in the low $200s.

The Federal News Network, Defensescoop, and multiple other media outlets reported that Deputy Secretary of War Steve Feinberg drafted a memo titled “Funding Palantir” on August 4 that exhorted the Department of War to increase funding for Palantir by $244 million between now and the end of March 2027.

This comes after a separate March 9 memo in which Feinberg ordered for MSS to become an official POR by the end of September.

POR status is used for the Department of War’s exquisite weapons systems such as the F-35 fighter jet, Columbia-class submarine, Sentinel intercontinental ballistic missile system, and PATRIOT PAC-3 missile interceptor.

In the age of AI, the Department of War views MSS as just as important on the battlefield as its most important munitions.

Palantir’s MSS was heavily utilized in conjunction with LLMs for mission planning, analytics, and targeting for Operation Epic Fury and Operation Absolute Resolve.

In terms of budget context, the fiscal 2027 budget requested $21 billion for the F-35 and $16 billion for the Columbia-class.

There was $2.3 billion requested for MSS and the Joint Fires Network (JFN), a significant increase from prior years’ budget requests.

According to our calculations, the broad rollout of Palantir’s MSS has been the main driver of the company’s U.S. government revenue growth accelerating to 90% in the second quarter from 5% in the fourth quarter of 2023.

In our view, the main risk for Palantir is increasing competition from the LLMs.

Since the LLMs are hiring Palantir forward deployed engineers (FDEs), there is the potential that these ex-Palantir FDEs build similar apps on the LLM platforms that they formerly built on Palantir’s AIP, and offer them for a cheaper price.

We have not seen this occur, but Palantir has acknowledged that the LLMs are hiring Palantir employees. There is also the potential that the MSS rollout slows down under a Democratic regime.

Valuation: Palantir shares trade at a reasonable 53 times our 2027 free cash flow estimate, compared with historical multiples in the 100- to 200-times range.

In our view, that multiple will expand back to the upper end of its range as Palantir’s revenue growth demonstrates resiliency in the face of competition.

We believe the main risk to shares is LLM competition and the potential that future political administrations are less favorable.”

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