Palantir jumps 30%, most since 2020 on first annual profit, AI demand

Palantir Technologies Inc. witnessed a remarkable 31% surge in its shares following robust demand for its artificial intelligence technology. The Denver-based firm’s 2024 profit outlook surpassed expectations, with projected adjusted income reaching $834 million to $850 million. Palantir’s 2023 net income hit $210 million, marking its inaugural profitable year. CEO Alex Karp highlighted the unprecedented demand in the commercial sector, propelling a 70% growth in US commercial market revenue during Q4. The company’s strategic shift to prioritise US operations underscores its commitment to meeting escalating AI demand.

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By Lizette Chapman

Palantir Technologies Inc. shares soared by 31% on Tuesday after the company reported big demand for its artificial intelligence technology and gave a higher-than-expected profit outlook for 2024.

The Denver-based software and analysis company said it expects adjusted income from operations of $834 million to $850 million for this year. Analysts, on average, had expected $760.3 million, according to estimates compiled by Bloomberg.

Palantir also reported 2023 net income of $210 million, its first year of profitability, Palantir Chief Executive Officer Alex Karp said in a letter to shareholders. The results exceeded analyst estimates of $194.5 million.

“Our commercial business is exploding in a way we don’t know how to handle,” Karp said in an interview Monday when the company reported financial results. “We don’t know what to do with the onslaught of demand.”

The company said revenue in the fourth quarter increased 20% to $608 million. Analysts had expected $603 million.

Tuesday’s rally was the biggest one-day gain since 2020. The stock has climbed more than 150% in the last 12 months.

In a note to investors, analysts at Jeffries said Palantir was able to capitalize on the AI frenzy faster than Wall Street had expected, and called out its free cash flow forecast for 2024 of $800 million to $1 billion. But they added,“Our biggest concern is if they can sustain the momentum after a seasonally strong” fourth quarter.

Karp told Bloomberg he is now “85% focused” on US operations and is “rebuilding the whole company” to meet growing AI demand. “It’s bombastic especially since you factor in that we’ve never succeeded in building an effective sales force,” Karp said. He expects Palantir to hold about 2,000 training sessions, or bootcamps, for potential customers across the country this year — more than double the amount last year because they’ve been successful. “This is product driven,” he said.

Palantir’s revenue from the US commercial market increased 70% in the fourth quarter to hit $131 million, the company said.

Co-founded by Karp and billionaire investor Peter Thiel in 2003, Palantir sells AI-powered software used by both commercial clients and governments that are allied with the US. Customers use the products to help make complex, data-driven decisions. Clients include engineering firm Jacobs, luxury car manufacturer Ferrari NV and the United Nations’ World Food Programme.

Palantir said growth has come from both new customers and expanding demands of existing ones. During the fourth quarter it closed 103 deals in excess of $1 million, and 21 deals in excess of $10 million — roughly double and quadruple the respective amounts compared to the same period a year earlier.

The company still generates the majority of its business from governments. Karp has made Palantir’s philosophy of supporting the military goals of the US and its allies a core part of its operations, picking up contracts from the Defense Department that other big tech companies had previously dropped following employee backlash.

Karp declined to provide details on how Palantir was being used in current conflicts worldwide, but cited risks to the US and its allies posed by Iran, Russia and China and said the company’s tools were being “actively used.”

“We are now engaged on three fronts,” Karp said. “We are proud of the role we’re playing on all three. I can’t say more.”

Some of Palantir’s government sales have been controversial. The company won a significant deal late last year with Britain’s National Health Service, sparking criticism in Europe that underscored a larger unease. Some overseas governments have resisted relying on a US-based company as a linchpin of the technology behind national health, defense and other operations. Despite broad expectations that France, Germany and other countries would buy software for their own uses after seeing it operate in Ukraine and more recently Israel, that surge has largely not yet occurred.

In a call with investors on Monday, Karp expressed frustrations with customers in Europe — including in the private sector. “Europe has decided it’s not going to engage in this revolution” around AI, he said, citing relatively slow sales on the continent.

As a result, the company is shifting more of its resources to the US. Karp said he’s telling Palantir employees based in Germany and France to “pack up” and return to operations in the US, where the demand is increasing faster than employees can handle.

Karp also said Palantir is getting “bombarded” by inbound requests from people looking for jobs, and that he’s getting personally involved in hiring decisions as he did during the company’s early days.

From Palantir CEO Alexander C. Karp

February 5, 2024 –

I.

Our expansion and growth, as both a company and as an organization, have never been greater.

We generated $608 million in revenue last quarter, representing an increase of 9% over the previous quarter — a significant reacceleration of growth for our company.

Our results reflect both the strength of our software and the surging demand that we are seeing across industries and sectors for artificial intelligence platforms, including large language models, that are capable of integrating with the tangle of existing technical infrastructure that organizations have been constructing for years.

After nearly two decades of investment, we have positioned ourselves as a fundamentally new software business, and our results reflect this ongoing transformation.

II.

We generated $2.23 billion in revenue last year, an increase of 17% over the prior year, when our business generated a total of $1.91 billion.

Our U.S. commercial business continues to be a significant driver of our growth, a trend that we expect to continue.

In the U.S. commercial market, our revenue increased 70% year-over-year to $131 million in Q4 2023 from $77 million the year before, bringing our total U.S. commercial revenue for 2023 to $457 million.

We now anticipate that our U.S. commercial revenue will exceed $640 million in 2024, which would represent a growth rate of at least 40% from last year.

The demand for large language models from commercial institutions in the United States continues to be unrelenting. Every part of our organization is focused on the rollout of our Artificial Intelligence Platform (AIP), which has gone from a prototype to a product in months. And our momentum with AIP is now significantly contributing to new revenue and new customers.

It once took weeks and months, if not longer, for data integration and analytical software platforms to be set up and integrated with a customer’s existing systems.

AIP can now be up and running in as little as a few hours.

Enterprises across commercial sectors that have invested hundreds of millions of dollars in lackluster or failed data integration projects are now seeing results in days.

The proliferation of and interest in large language models obscures the simple fact that the sophistication and power of such natural language processing systems mean little without an effective way of allowing those systems to interact with an organization’s underlying and proprietary data, which is often scattered across hundreds if not thousands of disparate repositories. AIP is that connective tissue, and the organic and unconstrained demand for its capabilities is unlike anything we have seen in two decades.

We conducted fewer than 100 commercial pilots in 2022. Since introducing AIP last year, we have already conducted over 500 bootcamps on top of the more than 130 pilots we undertook in our commercial business in 2023.

And while we have just introduced AIP in the marketplace as our fourth platform, our product pipeline is more robust than it has ever been in our history. 

AIP is the future of our company, and we believe that it will become the dominant platform for the entire industry.

III.

Our progress is not limited to our sales expansion. We are also reshaping the efficiency of the whole company as we continue to focus on profitability across our organization.

We generated another record profit last quarter — the largest ever in our company’s two-decade history.

In Q4 2023, we generated a profit of $93 million, cementing our fifth consecutive profitable quarter and making 2023 our first profitable year since our founding. Consequently, we continue to be eligible for inclusion in the S&P 500.

For 2024, as a result of our sustained and growing profitability, we now see a path towards $800 million to $1 billion in adjusted free cash flow.

We remain committed to building a business that will survive and thrive in any type of macroeconomic environment. As of the end of 2023, we maintained $3.7 billion in cash, cash equivalents, and U.S. treasuries, representing an increase of $1.1 billion from the year before.

IV.

Our company was built for the world as it is, not as we hope it might be.

And that world has proven to be far more disjointed and dangerous than many would have predicted.

As a result, we remain one of the few companies from Silicon Valley whose interests, both financial and geopolitical, remain fundamentally aligned with the American and global publics.