After Palantir (NYSE:PLTR) lost a major government contract this year and is reportedly on the verge of losing another one, the longer-term outlook of PLTR stock remains negative.
The news indicates that Palantir could be at risk of losing additional, meaningful deals in the public sector. What’s more, the reports undermine the notion, pushed by those who are bullish on PLTR stock, that Palantir’s technology is unique and unreplaceable.
One Lost Deal and One Potential Lost Deal
On Sept. 10, CNBC, citing Bloomberg, reported that the U.K.’s Department of Health and Social Care decided to end its data-sharing agreement with Palantir. Specifically, the agency had decided to no longer allow Palantir to maintain its Adult Social Care Dashboard.
Instead, the dashboard will be moved to a new platform called Environment for Data Gathering and Engineering (EDGE), which was developed by British defense contractor BAE Systems (OTCMKTS:BAESY).
The move came after a British website called openDemocracy earlier in the year sued the U.K. over the national health insurer’s deal with Palantir. Under its contract, the company was supposed to analyze English citizens’ data in an effort to improve the government’s response to Covid-19. The U.K. ultimately terminated that deal in June. Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) had also worked on the project.
And on Sept. 30, Seeking Alpha, citing Business Insider, reported that America’s Immigrations and Customs Enforcement is trying to eliminate Falcon, a surveillance tool developed by Palantir, and replace it with a product called RAVEn. According to Seeking Alpha, “Hundreds of companies are pursuing work on RAVEn,” Among the companies in that category are Amazon, Microsoft, IBM (NYSE:IBM) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).
The Implications of the News and Palantir’s U.S. Army Deal
The news about the contracts suggests that three of Palantir’s important risks (which I’ve highlighted in the past) are still very relevant.
One such risk is that, for political reasons, the Biden administration will look to terminate the U.S. government’s contracts with Palantir. Specifically, due to the Republican leanings of Palantir’s co-founder, Peter Thiel on the one hand and liberals’ aversion to Palantir’s data-collection efforts on the other, the company could lose important deals with the Biden administration. Palantir’s possible loss of the ICE deal indicates that this risk is alive and well.
Meanwhile, the loss of the U.K. deal suggests that the company’s political risk can and will extend to other countries.
Those who are bullish on PLTR stock would doubtlessly counter by pointing to the company’s recently announced $823 million deal with the U.S. Army. But Barron’s suggested that the contract may be worth meaningfully less than $823 million, and quotes Citi analyst Tyler Radke as agreeing with that view and suggesting that Palantir’s current guidance already factors in the deal.
Radke, who kept a “sell” rating and an $18 price target on PLTR stock, added that he thinks Palantir had “very light {contract} signing activity” with the federal government last quarter.
I would add that, for obvious reasons, including the tremendous importance and the difficulty of the military’s role, along with the apolitical nature of many of its leaders, it tends to be less political than other parts of the federal government.
Undermining the Amazing Technology Narrative
As I noted in a past column, Cathie Wood, perhaps Palantir’s highest profile backer, told CNBC in February, “So we think in many ways…and [Palantir] won’t talk about how, but [it] is certainly garnering a lot of business, which tells us that they are, seeing in the future and investing in the future in ways that…increasingly companies are going to need.”
In other words, Wood was admitting that she did not know how Palantir’s technology works or why it’s superior to the many other high-tech data analysis tools that are available now. And when I e-mailed the company itself to ask why its products are superior to those of its competitors, I did not receive an answer.
The fact that the U.K.’s NHS was able to abandon Palantir, seemingly pretty easily and quickly, and that ICE appears to be looking to take a similar step, suggests that the company’s technology does not have major competitive advantages over that of its competition.
Similarly, as I’ve pointed out in previous columns, in 2017, BuzzFeed reported that “Home Depot…ended {its} relationship {with Palantir} over concerns that Palantir’s services weren’t worth the price” and decided that it was able to carry out most of the same tasks on its own. Multiple other large companies “balked at Palantir’s price tag… or raised doubts about its usefulness,” BuzzFeed reported at the time.
The Bottom Line on PLTR Stock
Palantir looks more vulnerable than ever to losing government contracts for political reasons, and it appears that its technology is not as unique or as amazing as its backers believe.
Meanwhile, PLTR stock is still trading at a huge, trailing forward price-sales ratio of nearly 39. Given these points, I continue to recommend selling the company’s shares.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.