Insights

Why Palantir Stock Stumbled Today

What happened

Two days after announcing that it won a new contract from the U.S. Army, one of the most reliable customers in the world, Palantir Technologies (NYSE: PLTR) stock fell by almost 2% on Thursday. That morning, one analyst opined that the deal isn’t as impressive for the data analytics specialist as it might appear, and investors clearly took this to heart.

So what

That analyst is William Blair’s Kamil Mielczarek, who evaluated the contract in a research note. He wrote that, “While this deal is incrementally positive for Palantir, it makes up only 1%-2% of last-12-months’ revenue and does not grow total deal value at a fast enough rate to return total government revenue growth to 30%.”

The contract, in which Palantir is one of two participants, is worth $36 million. It covers the development of a prototype Tactical Intelligence Targeting Access Node (TITAN), which, when complete, will be the first intelligence ground station to be powered by artificial intelligence and machine learning.

Although Palantir has been shifting away from public-sector work in favor of commercial clients, it still derives a good portion of its revenue from the government. In the first quarter, for example, 16% of the $446 million in revenue it booked came from public entities.

Now what

Palantir’s drop on Thursday wasn’t only because of the unenthusiastic analyst note. (Mielczarek, by the way, rates it an underperform, or sell.) Tech companies have famously been shunned in the past few weeks as investors have shifted their money into assets considered to be more defensive and less risky. At times, only the best and most encouraging news will lift such a tech-stock’s price higher in such an atmosphere.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies Inc. The Motley Fool has a disclosure policy.

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