Alex Karp’s Bold Prediction Changes the Palantir Story

In this video, we're going to talk about why Wall Street is mispricing Palunteer right now and what would need to happen in order to justify its current valuation and where I believe it's going next. But before we get into Palanteer's numbers, our own estimates, and how we're actually playing this investment, cuz many people are doing it wrong, let's first listen to Alex Karp talk about where they potentially believe their numbers are headed. >> We have more business than we can apply. And we have look if you just look at our financials you can see like a uh two years out you can see 1518 billion in free cash flow >> 15 to$18 billion in free cash flow. Okay, he didn't explicitly say that this is annualized free cash flow or if he's saying over the next two years we are going to see cumulative returns of 15 to 18 billion because he made it seem like it's an obvious stat that hey if you just take a look at our financials you can see us clearly getting to 15 to 18 billion. I'm not seeing that. The whole world is not seeing that. [laughter] If that is what he's saying, if he's sort of giving guidance on the company, then we are in a world of excitement. So, let's take a look really quickly at Palunteer's overall December 2028 revenue estimates is at $16 billion. Now, let's imagine that he meant, hey, we're going from December to 2027 or something like this. I'm giving him the benefit of the doubt, skipping 2026 and looking two more years out. So, I'm actually looking 2 and 1/2 years out. total revenue is where he's saying free cash flow is going to be. Big big difference there. If we end up taking a look at free cash flow estimates from Wall Street, what we end up seeing is that right now in the last 12 months, we've done $2.6 billion of free cash flow. In the estimates of what Wall Street is seeing, we see 6.4 billion for 2027 and 8.8 billion for 2028. This is the current free cash flow estimates. That together would place us at around 15 to 18 billion. There are some people that are talking about this being a one-year number. And I don't know if I can believe that you're talking about bringing in free cash flow at the rate that Wall Street is expecting you to bring in revenue by. He did say that he's planning on growing sales 100% next year, which they don't want to talk about. And we're dealing with fewer people. We're doing it with less people, and we have more free cash flow this year than revenue last year. So, there's a potential, as he talked about on CNBC a while ago, that he wants to grow by 100% year-over-year. Mind you, in previous quarters, we've grown their overall revenue growth from 12% year-over-year all the way up to 84%. Companies do not do this. This does not happen anywhere else. Especially in a SAS name where this is not just selling hardware, you're selling software and the margins are really high which Palanteer is also sporting. To say next year off the back of putting up 85% growth, you want to then put up 100% growth is wild. Now, if we end up looking at Wall Street estimates that also had projected out 8 billion of free cash flow, they have year-over-year sales growth growing nowhere at 100%. In fact, they actually said that last quarter was going to be peak revenue. Every quarter after this is actually going to go down 80% 69% 62% 45% 45%. Is this a matter of Karp's estimates? Are the realistic numbers and Wall Street has not been able to actually absorb what is truly going to happen. So the difference is let's say March of 2026 was $1.6 billion. And then we end up actually assuming that what he's saying is true. plan on growing sales 100% next year. Let's take that number from 1.6 billion and go to March of 2027. We're now no longer looking at 2.4 billion of revenue. What we'd be really looking at is somewhere along the lines of 3.26 billion, which is huge. You're talking $800 million beats. You're talking beating Wall Street's estimates by the revenue that we saw a year ago. If that's what actually comes to fruition, then I think that Wall Street is going to greatly correct these numbers. The stock is going to end up doing much better. And then what you're honestly going to end up seeing is that free cash flow could end up destroying if you're talking about beating by like 30%. Free cash flow is could come in potentially way higher than that because you could beat on margins and then you could beat on the actual nominal number. If that's what ends up happening, we are way mispricing where we think that Palunteer should be at. This is a diversified business. They're growing revenue in two different segments almost identically. It's not that they're growing and taking advantage of government contracts and geopolitical conflicts. That's not what's happening. They're also growing in commercial and charging very similar rates. Government is being charged roughly a 73.3% margin, meaning it's only costing roughly 28% to actually make this revenue happen. the cost of goods is roughly a quarter of the amount that they charge. On commercial, it's almost identical. 72.7% margin. It's ever so slightly below government, but that could be an individual customer that's bringing that down or bringing it up on the government side. You don't really know. But the fact that they are so similar means that they're charging agnostically. They are seeing customers come in rule a 40 of 145%. And mind you, if we end up seeing margin improvement and sales grow by over a 100% next year, this rule of 40 is only looking to improve, that places us in the top five companies right now in the world that are publicly facing of scale like S&P 500 companies that are Micron, SKH, Highix, Nvidia, those sort of names. That's a list you want to be on right now whenever it comes to growth and margin. Customer counts are growing both from a government standpoint and commercial in general. And one of the best numbers that Palanteer sports is net dollar retention 150%. Let's imagine that year-over-year or even by next quarter that this net dollar retention did not hit its max. What happens to the stock if this gets to 155 160? If this continues to climb up, there's no telling where sales is going to go. And then obviously we need to track where their remaining performance obligation is going because this is honestly going to show us where revenue can go next. This is all future business. So as this scales and we end up seeing 4.8 or 5 billion or something even higher than this like a tick up that we saw from Q3 like September 2025 to December if we see a similar tick up from March to June then Palanteer is being significantly mispriced to where it should be today. And mind you, whenever we were buying this company, it was like at 115, 107, these sort of prices. Now I think we're already much higher than that. Palanteer 135 today, up 2%. Things are doing very well. There's one other slide that I wanted to show you guys. Not only consolidated net revenue, this is also what they talked about. Margins improving. We essentially saw 10% margin improvement quarter over quarter. And then also their cash pile. Cash pile is doing very, very well. $8 billion in the balance sheet,0 in debt. We're growing cash by roughly 50%. This could be merger and acquisitions. This could be for buybacks if the Trump administration gives them access to actually do that. There's no telling what Palanteer can do with all of this cash, maybe increase their sales and marketing teams. Like Alex Karp said, they have fewer and fewer people. Expenses are coming down, which is helping with their margins and seeing all that. But honestly, if you want to be able to grow sales by 100% year-over-year, that gets harder and harder to do with less and less people. $183 a share right now is what the analysts are placing this stock at. 38% higher than where we are today, but those are 12 month estimates. So, they believe that this price is for the next 12 months. So, 38% year-over-year. Now, whenever we put this up against other software companies, I'm looking at Palunteer here versus Salesforce or Workday or Snowflake, Data Dog, Service Now, many of the other very popular retail names. What we end up seeing is that Palunteer is growing so much faster than any of these names. You're starting to see a slight breakout from Data Dog, 32%. That is looking good, and it looks nominal whenever it's down here in the large separation, but that still is a very, very fast growing software company. But put that up against the margins as well. The 85% plus the 53% margins. Now we're really starting to stand out and you can see that stand out whenever we look at the actual valuation. So Palunteer's price to earnings ratio 148 times. Data dog here as well. And this can happen from companies that have one-time charges or a single quarter in the last 12 months that it was negative that their PE ratios can spike up drastically. That's perfectly fine. I'm not going to judge Data Dog based on an individual price to earnings. Plus, that's trailing numbers. Markets are forward-looking. Well, let's look forward looking. Whenever we take a look at software's forward PE ratios, we see Snowflake at 127 times. I see Data Dog at 105 times. And then I see Palunteer at 83 times. You see the 83 times. It's not anywhere near where Salesforce is 12 times Workday or Service Now, but it is pretty well priced whenever you put the margin and the growth rates on top of the actual valuation for Forward PE. And I'm not even talking about free cash flow right now. If you were to talk about free cash flow based on their 15 to 18 billion, like this company gets extremely cheap. That's very important to tie into it as well. But yeah, I'm honestly head over heels right now for Palunteer. Anytime that this thing dips down, and the only reason why I'm not looking to sell anything to rush into Palunteer here is because the software names are still very tentative. The market has not decided where to value these names yet. And you can see this in the stock price on a company that's only shown off earnings literally during this time. Right here was earnings. And that was way better than expected numbers. Higher growth rates, higher retention numbers, higher free cash flow. It was just a beat across the board. Guidance was improving as well. And what you can also see is that the stock has essentially stayed stagnant this entire time. We're at roughly the same price that we were. And there's been moments of stock price shoots up on no new numbers. $163 a share all the way down to 106. No new news. Potential new contracts, new Zeta partnerships, Golden Dome, some government contracts. They made Maven a program of record for the Pentagon. All of these things are good stories. And yet you can still have price action that is extremely volatile on the stock. So what I'm doing is I'm DCAing into this company. I'm buying overtime. I'm buying whenever these dips happen. Whenever I see this happen, I'm buying. Whenever I see the spikes up, I'm not selling, but I'm just holding through those moments. Another thing that I want to talk about is covered calls on Palunteer. In this market, it's very, very volatile, but that also means that the pricing on those covered calls can be very juicy. And so Palunteer during those spikes up to potentially 160 and as the numbers get better, I'll probably look to do this if it gets closer to about 180 is right out covered calls potentially a month out. Happy to roll if it continues to blow through my price. Remember, this is an expensive stock. We do have potentially increasing growth and increasing free cash flow, but there will be moments of this speculation as we try to figure out what's happening with artificial intelligence. So, I will be doing covered calls on Palunteer, not doing them here. Probably going to be doing them in another 30% higher in the stock price or 40% higher in the stock price from here. And then I'd be comfortable to try to make a little bit of money on my position and happy to roll out further and further if the stock price just blows through it. A lot different situation than whenever Palanteer was $20 a share because now we're sitting at a 300 and I'm talking about doing it at roughly 400 or$420 billion worth of market cap. a lot harder to make that company just explode to two trillion like it did back whenever the company was like $40 billion in market cap. But anyway, that was my Palunteer rant. Super bullish on this company. Let me know what you guys are doing with that company.