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Palantir (NYSE:PLTR), a Software-as-a-Service (SaaS) provider that specializes in big data integration and analytics, is practically flat for the year, with the stock undergoing periods of outstanding upward momentum followed by prolonged troughs.
Nonetheless, Palantir bulls have received a welcome waft of good news over the past few hours, which has played an important role in propelling the stock higher. At the time of writing, Palantir shares are up well over 8 percent in pre-market trading.
To wit, Palantir has now been selected by the US Army’s Program Manager for Intelligence Systems and Analytics to deliver “an operating system for defense decision making”. The OS would be built on Palantir’s Gotham platform and would serve to aggregate data from “disparate sources”. Should the project’s final testing proceed smoothly, Palantir stands to gain $823 million in revenue from this contract award.
As a refresher, Palantir currently has three main products. Its Gotham service integrates and transforms data, regardless of type or volume, into a single, coherent data asset. Moreover, the company’s Foundry service removes the barriers between back-end data management and front-end data analysis, thereby offering an integrated approach to interpreting vast data sets. Finally, the Apollo software solution powers Palantir’s Gotham and Foundry SaaS services in the cloud.
While this US Army contract award is currently providing some much-needed upward thrust to Palantir shares, readers should note that the stock is not out of the woods yet.
First, Palantir is now in danger of losing one of its most lucrative contracts as the US Immigration and Customs Enforcement (ICE) is seeking to replace the FALCON – a surveillance program designed by Palantir on its Gotham platform and is used by ICE to coordinate and organize its raids – with a new program called the RAVEn, a custom-built tool that tech giants such as Amazon, Microsoft, IBM, and Google, along with hundreds of other companies, are vying to develop. In the same vein, the agency is expected to soon announce contracts of up to $300 million for the RAVEn program. Bear in mind that Palantir has earned between $84 million and $111 million from the FALCON program. Should the company fail to end up as a RAVEn partner, it would lose one of its most lucrative sources of revenue.
Clouds are gathering for Palantir shares on the macroeconomic front as well. With the Federal Reserve widely expected to initiate the tapering of its Quantitative Easing (QE) facility by next month, heralding an upward trajectory in treasury yields in the process, growth stocks – particularly high duration ones – stand to suffer. For context, high duration stocks are ones that offer a low dividend yield. As Treasury yields increase, the opportunity costs associated with holding high duration stocks also increase, thereby creating an incentive for investors to switch away from these stocks.
Of course, the next big catalyst for Palantir bulls would come in the form of the company’s Q3 2021 earnings, currently slated for the 18th of November.