Palantir Stock Collapses After Disappointing Earnings—CEO Warns Threat Of Nuclear War ‘Significantly’ Underestimated

Topline

Shares of big-data analytics firm Palantir Technologies, which specializes in military software, plummeted to a record low Monday morning following a disappointing earnings report and a cautionary note from CEO Alexander Karp, who urged governments to weigh the consequences of further escalation between Russia and Ukraine despite acknowledging the conflict could be good for business.

Key Facts

Palantir stock tanked as much as 21% Monday morning to $7.35 per share—placing shares more than 78% below a record high in January, and pushing losses to nearly 60% this year alone.

Despite beating analyst expectations with $446 million in first-quarter revenue, Palantir’s earnings report triggered the morning stock plunge by revealing that the firm expects to pull in about $470 million in sales the current quarter—below initial projections of about $490 million.

The firm, which counts the Defense Department and international military agencies among its biggest clients, acknowledged “a wide range of potential upside” driven by the war in Ukraine, but CEO Alexander Karp struck a different note in a letter to shareholders Monday, warning “the world significantly underestimates” the threat of nuclear conflict in Eastern Europe.

Though Karp in February said “bad times are very good for Palantir” because its products are “built for danger,” the CEO on Monday urged governments to weigh the risk of further escalation when deciding whether to intervene in Russia’s invasion of Ukraine, and told investors during a conference call that the risk of nuclear war is “so much more than presented in the public.”

In a note to clients before earnings, RBC Capital analyst Rishi Jaluria said he remains cautious on Palantir’s performance in the long-term but that higher government spending in the short-term could bode well for shares, which nevertheless are “not cheap” relative to projected revenues.

On a more bullish note, Piper Sandler analyst Weston Twigg told clients last week he believes the stock could roughly double over the next year thanks to stable revenues from the U.S. government and a “rapidly growing commercial expansion”; Palantir’s commercial business grew 54% last quarter, compared to 16% growth from government clients.

Key Background

Founded in 2003 by a group including Karp and billionaire Peter Thiel, Palantir held a long-awaited initial public offering in September 2020, listing shares at a reference price of $7.25. Though shares skyrocketed as much as 280% during the pandemic, Palantir has struggled over the past year as a waning pandemic and the threat of rising interest rates scare investors away from technology stocks. The firm, which provides artificial intelligence and data analytics services to mainly government clients, has also come under fire in the past for controversies involving racial discrimination, spying and copyright infringement.

Big Number

$101.4 million. That was Palantir’s loss in the first quarter, slightly better than a $123 million loss one year earlier. The firm reported $446.4 million in revenue, up 31% from the first quarter last year.

Crucial Quote

“There is a path to the right outcome in Europe, but we must be unrelenting in our focus on increasing both the probability of a peaceful resolution over the long term as well as the number of overlapping and redundant pathways toward such a settlement,” Karp said Monday.

Tangent

Though classified as a technology stock, Palantir has often been criticized as an expensive defense stock. After a meteoric surge in late 2020 left Palantir trading at 33-times forward-looking revenue (more than double the average multiple in the broader software-as-a-service industry), Morgan Stanley analyst Keith Weiss questioned whether Palantir is a “true software company” or just a “less desirable” government consulting firm. In a note to clients last month, Bank of America analysts said they “worry that some investors expecting a quick boost” in defense earnings due to the war in Ukraine will be “sorely surprised,” by first-quarter results, noting it “takes time” for money to flow from legislators to the Treasury, and ultimately to businesses. Despite initially soaring, the iShares U.S. Aerospace & Defense ETF is now roughly flat since Russian troops invaded Ukraine on February 24.

Further Reading

Stocks Could Plunge Another 15% After Fed-Spurred Selloff—Will The Economy Fall Into Recession? (Forbes)