Ibm palantir forge partnership in lowcode

Introduction:

The purpose of this article is to discuss key takeaways from Palantir's Double Click Demo day, where they showcased how Foundry is being used by their customers across the Life Sciences and Industrial sectors. IBM's Q1 Earnings call was held on April 19th. Hence, my article takes evidence from both events to extrapolate on how both companies could potentially be a leading force in the Artificial Intelligence race in a decade's time.

Source: IBM - Palantir Cloud Pak

In February, IBM & Palantir struck a partnership to build Palantir for IBM Cloud Pak for Data. This partnership brought about an alliance between two technology powerhouses that I believe - is set to last for a long time. Hence, I believe it will be increasingly important for both Palantir (NYSE:PLTR) and IBM (NYSE:IBM) investors to understand both companies' AI ambitions throughout 2021.

Investment Thesis:

My bullish thesis for Palantir is based upon their financial growth and technological capabilities. My financial valuation thesis suggests a price target of $45-$50 based upon Palantir generating over $1.7B in revenues in 2021 due to the significant boost the company has received from the signing of new contracts since Q4 2020. I will expand more on this rationale later in the valuation aspect of this article.

My technology thesis for Palantir is built upon Palantir's Foundry future growth potential. Palantir recently announced a new Government Partnership with the National Nuclear Security Administration, and I believe there will be many more big Government contracts in the future. However, my thesis is built around the capabilities of Foundry to penetrate more Fortune 500 Companies over the next decade. I expect the commercial business to become the main revenue driver by 2025 based upon their synergetic partnership with IBM.

My thesis for IBM is built upon the new CEO, Arvind Krishna's vision for the company. Arvind is transforming the company by enabling IBM focus entirely on their Artificial Intelligence and Hybrid Cloud Core competency. I believe partnering up with Palantir will enable both companies become a leading force.

Article Structure:

This article is detailed. I want investors to connect the dots between Palantir's new contracts and partnerships over the last six months as investors will observe that the majority of Palantir's partnerships have been centered around industrial-related, automotive, and life science-based companies. Meanwhile, over the last year, IBM, who is considered a major leader within the industrial Cloud-AI market have been building their synergies here. Now, both companies have come together to unleash their potential across industrials and life sciences. As a result, I explain both industries in-depth.

The outline of this article is structured in the following manner.

1) I begin with a Palantir Foundry Refresher building on my previous Palantir article on the strengths of this software.

2) I explain the goal of Palantir's Double Click demo day. The key takeaways from the Industrial Demo and expand upon the rise of the Industrial Internet of Things (IIoT). Next section details how Palantir and IBM are going to redefine the next generation of industrial manufacturing.

3) I discuss key takeaways from the Life Sciences demo.

4) I provide an extensive explanation of IBM's Cloud capabilities, earnings call highlights and explain how Palantir’s Foundry partnership with IBM creates a powerful coalition that can accelerate the future growth of both companies.

5) I conclude with a valuation rationale and bottom-line conclusions.

Palantir Foundry Refresher:

I made a case in my Feb 21, Palantir: Forget Gotham City, Foundry Has The Untapped Potential on why investors of Palantir should reduce their focus on Palantir’s Gotham business which is primarily Government and pay more attention to Foundry, Palantir's commercial application because this business appears to be the future growth driver for expanding their Total Addressable Market Opportunity. Since that article, Palantir has announced a few new partnerships amongst commercial organizations.

Foundry: To simply put, Palantir's Foundry strength is the ability to integrate an organization's classified and unclassified information across databases, both structured and unstructured data that are siloed in different aspects of the organization and bring it into a centralized 360-degree view for both business and technical users. I created a visual below to illustrate this explanation.

Investi Analyst Created Visual from Palantir's Video

In my previous article, I discussed how Palantir's Foundry is built around four key premises and strengths. The foundations are i) The Data Integration prowess of Palantir's Foundry for integrating and analyzing massive disparate datasets. ii) Knowledge management, Ontology-based models & Classification of large amounts of data. iii) Search, Analysis & Discovery capabilities. iv) Enabling collaboration both within an enterprise and externally amongst industries with a clean low-code, no-code interface for business users.

Palantir's software is built on an architecture of complex pieces of software on the back-end, which enables the front-end look simple with their "low-code, no-code" user interface for both technical and non-technical individuals. The software can manage complex situations such as battlefield scenarios for the US Army or for the National Security Agencies for high-profile investigations where situations are constantly changing. The ability to transfer and apply this data expertise from an unstable environment towards an enterprise or towards customer behaviour where things are slightly more controlled, than a battlefield shows the immense future capabilities Foundry could impact upon organizations. Most especially when combined with the new features that IBM will bring to the table (More on this later). Based on my experience working on a Data Science team, Palantir is solving a key problem for many organizations.

What is Double Click?

Source: Palantir Double Click/Investor Relations

Double Click is a series of software demo events where Palantir will show how its platforms are being used across a variety of industries. Customers will learn how their applications [Gotham, Foundry, Apollo] are helping existing customers accelerate their Digital Transformation journey. I also believe Palantir is striving towards improving transparency with external stakeholders including investors and potential business customers.

In my previous analysis, I discussed about how Foundry's Artificial Intelligence platform is being used across multiple industries in Oil and gas, power generation, Healthcare, Aerospace, Automotive, Construction, Chemicals management, Clean Energy generation, Mining, Telecommunication, Manufacturing, Distribution, Finance, Consulting, After-Sales, Supply-Chain and many more.

However, in this first demo, Palantir focused primarily on the Industrial and Life Sciences verticals while other sectors will be showcased later in the year. Let's begin:

1) Industrial Sector Demo Takeaways

Source: Palantir's Double Click

To understand the Industrial use-case for Foundry, it is first important to have a foundational understanding of the next digital transformation that is happening across the Industrial sector. When we discuss industrial, we are looking at sectors that are capital and asset intensive such as Energy companies, Aerospace manufacturers, Supply-chain manufacturing companies, etc.

For evidence of my next section, I want you to observe that during the demo, Sam Woodward, Forward Deployed Engineer (Who is the leader of their Industrial IoT services at Palantir) spoke about their work here. She leads their IoT division which is symmetrical to Industrial IoT. Hence, we need to learn some basics about Industrial IoT systems.

In my opinion, the next decade will see the unleashing of the next industrial revolution 4.0 - the age of intelligent machines, robots and where capital-intensive industries will become the new digital businesses. This Industrial revolution 4.0 has to be powered by the Industrial Internet of Things (also called IIoT). Industrial IoT is defined as a set of integrated software capabilities that enhance operational visibility, control and augments the communication between machine-to-machines and devices-to-human for companies within the Industrial context.

Industrial IoT utilizes thousands of external sensors, detectors, nodes and monitoring devices on-field that are then connected with a manufacturing software application which allows for instant communication, enhanced real-time data collection and analysis, and further enables efficiency and automation in the industrial context.

As seen below, similar to the Consumer IoT devices that we have in our homes whether it be for Fitbit or home monitoring items such as tracking home lightings, alarm detectors that work with an Amazon Alexa or Google's Nest, etc. We can apply the same technology to an industrial context to interconnect applications that improve the entire industrial process for asset-intensive companies. IIoT is powering smart factories, smart cities with better transportation, heavy machines and many more.

For thousands of sensors and IoT devices to become intelligent, they need to be powered and enabled by advanced data analytics, machine learning models, big data, cloud computing, edge computing, 5G networks and cybersecurity technologies. This is where Palantir and IBM's Watson play a role by providing the technology stack to enable IIoT for companies. IBM is considered a leader in IIoT and I will discuss more on this later.

Additionally, from the demo, we learned that Palantir's Foundry has the analytical capabilities that enable proactive, data-driven root cause analysis and problem identification before issues occur in a supply chain. This helps to avoid system failures and unplanned downtime. This is based on the way Foundry collects, analyzes data from thousands of devices and sensors around multiple factories or the operational environment around the world in a matter of minutes. Palantir is great at absorbing lots of datasets from legacy ERP, CRM and SAP infrastructure systems and quickly integrating those into a digestible format to allow for insight generation. An illustrative example of a digital manufacturing factory powered by IIoT is shown below (zoom in closer):

Source: Internet of Things in manufacturing – the Microsoft view

Foundry's Digital Twin leads to better predictability and forecasting:

Digital Twin is central to Foundry. This is an important concept discussed at every Palantir demo. A digital twin is a digital and virtual replication of a company’s physical assets, processes and systems. Within an industrial context, it allows companies to conduct experimentation without shutting down a system or a plant. A Digital twin delivers significant amount of business value by allowing companies to better predict the future and detect issues before they arise. Palantir's technology has helped many industrial organizations create the Digital Twin and model simulations powered by their Foundry's ontology models. Sensors and the business ontology (think of a company's dictionary or library) provide key data inputs into Palantir's machine learning models which help mirror an organization’s real-world operations. As seen below, here is a digital replica of a manufacturing plant. On a computer software, a business user on the right can see all that information, conduct analysis and perform real-time simulation of the factory through Palantir’s Foundry.

Source: Palantir's Inaugural Live Demo Day

Also, central to the demo for Industrials was the launch of two new system functionalities that are embedded on Foundry for clients. These are Foundry’s Quality Archetype and Foundry’s Supply Chain Archetype. Essentially, both system functionalities are meant to enable industrial clients create AI models faster to solve problems, improve future predictions and forecasting.

Analysts can expect to inspect a digital twin of the supply chain to identify compromised assets early, identify vulnerabilities and escalate alerts to collaborators to take action before things happen. Clients can become much more proactive in dealing with their supply chain by better predicting future challenges.

Some Industrial Examples & Results So Far

Some of the results have been exhibited based on their most recent partnership announcements over the last seven months.

The recent BP Energy Partnership is evidence of the positive results that the Quality Archetypes has shown. Palantir has already delivered massive enhancements to BP's hydrocarbon-based workflows. BP – within hours, they were able to bring together an integrated supply chain, become proactive by identifying bottlenecks in their supply chain and in two weeks (instead of months), they improved the robustness of their supply chain to react to future shocks. Palantir said, "We continue to support BP’s efforts in risk monitoring, including workflows around infrastructure management, and information flow management." Palantir also supported the BP Digital Twin which has yielded concrete results in providing a more efficient operations management, better modelling of different scenarios, efficient asset allocation, removing bottlenecks and has saved BP Energy over $50-million in cost-savings.

Another evidence is the success of their Rio Tinto Partnership regarding connecting people with data at Rio Tinto’s underground operations for mining metals and copper. Foundry's software integrates data from a multitude of disparate on-field sources through hundreds of sensors, machines and human data and then on Foundry, users can create sophisticated analysis to better improve mining operations.

They also have a partnership with Doosan Infracore, a south-Korean company. where they are helping to detect changes in market trends very early so the company can react quickly to changes. They've smoothed Doosan's complex workflow, enhanced forecasting of future customer demand and improved errors and helped integrate data from different systems with Doosan Infracore.

These are other examples that I won't discuss in this article. In future articles, we can discuss the 3M Partnership where Palantir plans to support the building of a dynamic supply chain for 3M using Foundry or we can discuss their Faurecia automotive technology partnership. There are also examples of their digital Industrial transformation being utilized with airplane manufacturers, for example with Airbus, they built a data technology platform Skywise for Airbus, which has expanded into a platform for most of the aviation industry. There are many examples we could explore in the future.

Bottom line: Foundry will likely redefine the future of Industrials

Simply, this demo has shown the power of Foundry's software to integrate a vast amount of information instead of the manual and time-consuming manner of gathering data from these legacy businesses. Palantir's software manages the entire complex process of data integration in hours and minutes compared to the previous weeks and months required to implement them. IBM Cloud Pak Data Services will play a major role here which we will discuss later.

The bottom line here is that Foundry is becoming a central operating system not only for the individual corporate enterprise but also for global industrial organizations. The old way of manufacturing and production involved significant human labour to monitor plants and manufacturing processes that led to significant waste and inefficiencies. The future of manufacturing will be digitized. Palantir is powering all these intelligent sensors that automate and optimize the entire manufacturing process. Similarly to how Google and Amazon were key pioneers in the Consumer IoT markets that made our homes much more efficient. Palantir and IBM are leading the transformation of the smart and intelligent industrial factories of the future.

2) Life Sciences Demo Expectations:

Source: Palantir's Double Click

Palantir demonstrated how Foundry is being used by customers that are Healthcare providers, biopharmaceuticals, hospitals, clinical research and medical research institutions. I'll quickly note that IBM's Watson software is currently used to help the US Government with different initiatives around Healthcare, similarly to Palantir's healthcare projects.

Palantir showed how Foundry enables the creation of the comprehensive patient picture by bringing together and analyzing vast amounts of clinical, observational, and molecular data to better predict health outcomes. It is important to note that over a thousand researchers at the National Institute of Health (NIH) in the US and the NHS in England are currently using Foundry to manage Covid-19 initiatives from research to vaccine supply management to managing Covid health records of citizens. We learned about their partnership with the National Center for Advancing Translational Sciences (NCATS). There are even partnerships with Syntropy-EMD Digital Partnerships (a subsidiary of Merck (MRK)) that were not discussed where they are advancing cancer research. In both of these two scientific partnerships, Foundry's software is enabling several critical health projects to become efficient through the integration, management, analysis, transformation of scientific data into insights for healthcare professionals as seen below. All while ensuring security is embedded throughout the process.

Source: Palantir's Double Click

Palantir also showcased how they are helping with Covid research by enabling these health researchers access clinical data and EHR (Employee Health Record) Data to use to inform decisions. We know that there are major confidential issues surrounding patient health data, but Palantir showed us how their advanced security capability ensures privacy is top of mind. They showcased how their security features enable the safety of patient data through Palantir's purpose-based access control system. They showcased how their Data governance protocols are administered and how the new model management archetypes enable increased productivity for healthcare professionals.

The bottom line is that the pandemic has accelerated Palantir's (and even IBM's) work within Healthcare and Life Sciences. Investors would have observed that Palantir signed extension of contracts with the US Government National Institute for Health, the US FDA $40M Contract and the UK National Health Service (NHS England) to help track the spread of COVID-19, vaccine supply-chain management, all while using Foundry to support clinical trials and research. I believe the Life Sciences sector has the capacity to drive significant future returns for Palantir. We know that post-Covid, there is bound to be significant budget allocation towards stopping the next major pandemic. Artificial Intelligence will play a central role in helping with the development of a solution towards the next era of drug discovery. There are also massive opportunities to apply Artificial Intelligence to Genomics and lead the next transformation in Healthcare, but we won't spend too much time on that for this article.

IBM's Watson and Palantir's Foundry Synergies:

Source: IBM Investor Relations

Let's first begin with some context and foundation about IBM. Today, IBM primarily sells computer software, they provide hybrid cloud computing hosting and consulting services through their Global Business Services and they provide some hardware/system services. Lest we forget, IBM is a major research powerhouse, holding the record for most U.S. patents generated by a business. They were also one of the first movers into Quantum Computing, an area that is going to unleash a significant amount of potential in the future for Artificial Intelligence.

Since 2020, when the new CEO Arvind Krishna took over, his focus has been on transitioning the company towards becoming a dominant force in the Hybrid Cloud and AI Industry. First, let's break down Hybrid Cloud. Hybrid cloud computing is a combination of both a public cloud (the most famous one we hear about today provided by Amazon AWS, etc.) and the private cloud is owned by a corporation and most likely involves an on-premise infrastructure for information storage. IBM has its own full Public Cloud platform similar to Amazon's AWS - solidified with Red Hat’s OpenShift as a foundation. CEO Arvind's vision is to offer a solid AI package using the value of the hybrid cloud approach, combining both public and private cloud for enterprises.

The CEO's AI ambition has been shown first by spinning off their NewCo business line (now branded as Kyndryl), a managed infrastructure services player. This was a legacy business. They have also made over ten acquisitions over the last one-year and ultimately, signing the partnership with Palantir to strengthen their AI capabilities is likely the icing on the cake. I will also note that Watson is the brand product name for IBM's AI product package, it is sometimes called Watson Conversational Agent.

Below is a business breakdown of IBM's business based on their new Hybrid and AI Strategy. I have highlighted the yellow area as I believe this will be the intersection between how the partnership between Palantir and IBM will play out over the next decade.

Source: IBM Q1 Earnings Investor Presentation

I will now explain how IBM's Watson and Foundry work together to create synergies that are being utilized to solve those key problems across the Life Sciences and industrial sectors.

First, we begin with IBM's key competitive advantage and strengths. IBM has a strong underlying data architectural system (see picture above or below) and is the leading, world's most robust hybrid-cloud platform provider especially with the acquisition of Red-Hat. They are also great with infrastructure modernization and network hosting service management. Now, Palantir's key strength is its data integration prowess, its ability to bring AI into operational software applications, and transforming raw data into actionable insights through a low-code, no-code clean interface for non-technical business users.

For this partnership, IBM will use their Cloud-Pak for Data to connect to multiple legacy systems and handle all the messy data within multiple databases for an enterprise client. The illustration below shows how IBM's Cloud Pak provides the underlying cloud foundation to handle all the data needs at the bottom. Now, Palantir's application comes in and takes over at the upper funnel by transforming those raw datasets into AI insights for all the business users and stakeholders across an organization. See the Illustration below.

Source: IBM Cloud Pak for Data

This partnership will be utilized across the two industries discussed above in industrials, life sciences and even many more, but let us apply it back to our Industrial transformation use case. It is important to note that in order to build a coherent Industrial IoT Strategy, you need strong cloud computing, data management architecture, 5G network, security and integration capabilities to capture thousands of data points as mentioned earlier above. This is where both companies' synergies come together. IBM has been a dominant player within Industrials. IBM has been investing significantly into hybrid cloud and AI over the last few years especially with their new CEO. According to Gartner Industrial Internet Report, IBM's Watson IIoT platform helps assist industrial companies through the delivery of a hybrid-cloud service on the IBM Cloud. And since we know there is a high amount of Cloud Computing required to make Industrial IoT successful, IBM serves this need. Also, Gartner states that IBM is really good with asset monitoring for manufacturing and transportation services. IBM's Watson also has a wide and deep set of AI functionalities to build Industrial IoT-enabled business solutions, so we can see there are bound to be strong synergies between both companies within Industrials.

Palantir complements IBM's Cloud data by helping with the scaling of AI models into operational aspects of a business by creating a clean and easy analytics UI interface for business decision-makers. Below is Gartner's Research Magic Quadrant for Industrial IoT Platforms where they perform an in-depth market evaluation. You'll note that IBM ranks as only a Niche Player. This is because they lack a full solution and don't have any on-premise operational platform (like an AI powered low-code, no-code UI solution like that of Palantir) for customers as compared to Hitachi or Microsoft below. IBM has lacked an integrated visionary product stack compared to Microsoft who owns Azure and PowerBI. IBM only provides a managed collection of cloud services on their IBM Cloud. They are simply great at providing anything cloud.

Figure 1. Magic Quadrant for Industrial IoT Platforms: Updated as of October 2020

However, as a result of the partnership, I expect IBM to be moving towards the Visionary stage on Gartner over time and improve their rankings. IBM's Cloud Pak services should drive future revenue growth and lift IBM's stock from its poor performance in recent years for its shareholders. However, this thesis will take time. Due to Palantir, IBM can offer a much more comprehensive product to their current cloud partners and provide a much more user-friendly interface. It is important to note the Industrial use case is just one of several examples where both companies can come together and transform companies along with their digitization efforts. There are many more use-cases for future synergies between both companies to scale AI for their clients.

This transformation thesis for both companies, in my opinion, will play out over multiple years and there are bound to be challenges. On a high level, some of the key risks of this IIoT thesis is that many organizations face challenges around the significant upfront dollar costs of investing into building these full AI stacks, then there are also challenges around cybersecurity, lack of standardization, data integration and data integrity issues. However, I believe this is why key alliances and partnerships are being forged to drive down the cost curve for more organizations.

Key takeaways from the IBM Earnings call - As it relates to IBM's AI ambitions and Palantir's partnership

On Monday, April 19th, IBM conducted its earnings call. IBM reported their first quarter revenue of $17.7B, up 1% year-over-year in the first sales growth after four straight quarters of declines. Their Cloud & Cognitive Software sales were up 4% to $5.4B with the strength in Cloud & Data Platforms. This means IBM as a company are gradually seeing fruits from their Cloud and potentially AI synergies (excluding anything with Palantir). I fully reviewed and analyzed the earnings call to pick out key references on their AI Ambitions as well as how it relates to Palantir. Below are key statements from the CEO:

Source: IBM Earnings Transcript

There are four key points from the transcript as you'll observe, I divided it into four sections.

i) First, as mentioned IBM is focused on transforming the company by moving away from legacy businesses and transitioning into making IBM a leader in AI and the Hybrid Cloud. They are also focused on making IBM a growth company instead of a Dividend leader.

ii) Second paragraph, the CEO talked about how they are utilizing Palantir's Foundry to help them scale their AI Initiatives for their clients across different industries. Gartner's 2021 research ranks IBM as a major leader in Artificial Intelligence based on IBM's completeness of vision and ability to execute. Gartner says that IBM has a robust package of AI language, vision and AutoAI products, which includes IBM Watson Assistant, IBM's Maximo products IBM Watson Discovery, IBM Watson Natural Language Understanding, IBM Watson Studio, and IBM Maximo Visual Inspection. These tools give data scientists and technical employees all the packages and solutions to rapidly scale AI models within an organization. As a result, think about the synergies IBM and Palantir could bring together for the future to drive growth.

iii) Third paragraph provides evidence of how IBM's AI Watson is being utilized across healthcare and life sciences. IBM Watson's Health capabilities especially with Cleveland Clinic are very similar to what we heard from Palantir's Double Click on their work with NCATS & Life Sciences as discussed earlier. They discussed very similar features between how IBM utilizes their AI models to help with Vaccine administration for the US Govt which is similar to what Palantir does.

iv) Final paragraph provides us some context to understand the sales force partnership with Palantir. Today, over 3000+ organizations are using IBM's Hybrid Cloud. We also know that IBM has a sales force of over 2500+. The CEO discussed on the call that they are investing more into readjusting their sales strategy. They are going to make new changes to allow them to capture the opportunities discussed in Hybrid Cloud and AI, so I expect to see a strategy that will also be beneficial to Palantir and eventually both parties.

The Partnership evolving:

I will note this IBM partnership will strengthen Palantir's cloud offering and allow their Foundry software to be visible to over 2000+ organizations from the current 120+ served by Palantir today. Also, IBM should be able to gain additional in-roads/access towards future US government contracts. Note, this is not going to be an easy cake, but there are possibilities here. I will also note that all these capabilities are being built using Amazon's Enterprise Resource Planning. The coalition between Palantir and Amazon teaming up and launching an Enterprise Resource Planning (ERP) system on Amazon's AWS Cloud Service should also provide Palantir visibility into AWS Clients. Palantir's ERP Suite is optimized to run on AWS to assist customers with data integration and analysis.

Let's not forget that IBM has numerous intellectual patents in AI and they are one of the first movers with strong capabilities in Quantum computing. The CEO also stressed their ambitious roadmap to build a 1000-plus qubit quantum computer by 2023. The future potential of quantum computing will potentially lead to explosive gains in industrial robotics and lead to medical breakthroughs in life sciences such as drugs that can cure a wide variety of diseases and diagnose illnesses sooner.

The bottom line is that IBM's ambition toward becoming a leader in Artificial Intelligence with the new CEO should allow for more extended partnerships to be built with Palantir. In fact, it is important to note that the head of IBM’s Cloud Pak, Rob Thomas, Senior Vice President of IBM Software who leads the IBM's vast software portfolio including the Cloud and Data Platform segment said to Bloomberg that he expects that almost half of IBM's Revenues going forward will likely come through reseller agreements with partners like Palantir instead of developing solutions in-house. I believe IBM's Cloud Pak for data services with Palantir is just a stepping stone and a foundation for future initiatives that will benefit both parties to become a leading force in the AI Race by 2030.

Valuation:

My financial valuation for my Palantir thesis suggests a price target by year-end of $45-$50 based on the fact that Palantir could generate more than $1.7 Billion in revenue for 2021. The revenue growth drivers include i) the significant boost the company has received from signing new Covid Contracts with the US, UK & Japanese Governments ii) A potential $300M contract renewal with the US Department of Defense iii) Recognizing more revenue from contracts signed since Q4 2020 worth over $360M+ iv) the expansion of their sales team with the new IBM partnership v) expectation for increased partnerships/contract announcements later this year as Double Click evolves. For the bottom-line financials, I expect stock-based compensation to reduce in 2021 since the IPO has been completed and due to the increased concerns expressed by investors. The partnership between IBM and Palantir should benefit both companies substantially, but I expect Palantir's margins to improve more as they leverage the scale of IBM's team. I will also add that we've observed an improvement in contribution margins from 21% in 2019 to 54% in 2020 further supporting Palantir's scale. I don't expect non-GAAP profitability in 2021. All this leads to my price target of $45-$50. This valuation is not unreasonable if they grow over >55%+ YoY in 2021.

The biggest risk to my valuation will be the market rotation to value and the relative direction of interest rates and their impact on valuation multiples. Bullish investors need to recognize that if the economy and GDP grow over 6% and inflation picks up later in 2021, there is a high probability that rates and the 10-year yield will rise over 2.5%. If this happens, technology companies will get a valuation re-rating downwards. This article fully explains the inverse relationship between technology companies and interest rates. Hence, investors of Palantir need to get comfortable with the possibility of Palantir underperforming in the short term, but significantly outperforming over the long-term.

One more thing... Get Ready to be Whooped Around

Source: Google Stock Chart

Investors should be prepared for a volatile 2021. Be prepared to be whopped around with your Palantir stock.

Let’s take a stock like Twilio (TWLO), a leader in cloud communications platform. In 2016, due to some short-term disappointing earnings report, the stock crashed. Later in the year, Trump’s election led to a rotation to value stocks and a sell-off in technology companies (sound familiar?). This all happened as Twilio was growing revenues over 40%-60% year-over-year. Those investors who patiently focused on the potential of the technology, execution and most importantly focused on Twilio’s fundamentals were rewarded with a 10x return in less than five years.

The current downward traction of Palantir's stock and no signs of improvement would force you to sell. However, I strongly believe that as IBM's Watson + Palantir's Foundry AI capabilities penetrate more Fortune 500 corporations, the big contracts continue pouring in from the US Government and most importantly, management continues to execute, Palantir will be able to reward long-term and patient investors with a 10x multi-bagger over the next decade.

Bottom Line and Conclusions:

In summary, my article has broken down the reason why Palantir’s Double Click will continue to be a major theme for the company over time. The newly launched Archetypes launched by Palantir was central to Double Click. Both were newly developed to help their clients ingest data, analyze and deploy the output into predictive models all in a matter of hours - something that has historically taken months to accomplish manually. By creating readymade solutions for customers, Palantir will be able to continue to improve their product market fit for commercial clients.

Palantir has long been described by the press as being 'secretive' and lacking transparency. I strongly believe that Palantir's Double Click is a desire to change this narrative and over time, I expect these series of Double Click events to continue to further drive momentum. My advice to Palantir's team and engineers for the next Double Click is to try to break down more technical topics into digestible formats so that many more stakeholders feel more involved during their demo days. I benefitted from working on a data science team, but not everyone has this experience.

We've also discussed how Palantir and IBM are going to be combining their synergies to lead the digitization of the industrial sector and lead major advances in the cure of life sciences to help society achieve major breakthroughs by 2021. I provided some evidence to show that IBM’s new CEO is very serious about his ambitions to reposition IBM as a leader within AI & the Hybrid Cloud. Ultimately, I see IBM Cloud Pak for Data services with Palantir as a stepping stone for more synergic partnerships within AI.

Palantir is a technically complex company making a large societal impact, most of which the impact is largely unknown to the world, so we need to dig deeper sometimes. Also, note, this article is only a quarter of Palantir's global impact. My hope is that after reading this article, you'll begin to connect the dots amongst all of the partnerships that were announced over the last seven months including future announcements and see how it ties into digitizing the future of industrial and life science industries. IBM investors should be optimistic about the future. Going forward, merging IBM's AI deep expertise and Palantir's Foundry capabilities, we would realize an AI powerhouse is being built today.

This article was written by

Equity Research Analyst conducting comprehensive analysis into the best companies.Led Data Analytics technology projects within the Banking Industry. Background is in Business and Finance/Economics.--1) I write for the Seeking Alpha community2) I share short daily insights on Twitter | https://twitter.com/InvestiAnalyst 3) Personal full write-ups on Substack | https://investianalystnewsletter.substack.com/welcome

Disclosure: I am/we are long PLTR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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