IT Software & Services
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PLTR $35
09 Sep 2024 |
Palantir will be added to the S&P 500; share price soars
How wonderfully fitting: One of our favorite companies is knocking one of our least favorite companies out of the S&P 500. S&P Global has announced that software platforms and data mining company Palantir (PLTR $35) will replace American Airlines (AAL $11) in the benchmark index as of the 23rd of September. Palantir shares spiked 14% on the trading day following the news, and are now up 77% year to date. We have owned this stellar company within the Penn New Frontier Fund since the day it went public at $10 per share. Along with the announcement on Palantir came news that Dell Technologies (DELL $106) would replace Etsy (ETSY $52) within the index, and Erie Indemnity (ERIE $504) would replace diagnostics and life sciences company Bio-Rad (BIO $323). Erie is an underwriter for insurance products such as personal liability, property, home, flood, and auto policies. As for the company Palantir is knocking out of the index, American Airlines, one could make an argument that it is grossly undervalued at $11 per share. We are reminded of clients who would tell us, "The stock is near $10 per share, it has to be undervalued!" Of course, share price means absolutely nothing by itself. Yes, AAL was trading near $60 per share six years ago; it also lost $121 million on $50 billion in revenue over the trailing twelve months, has a horrendous customer service reputation, and a hapless management team. If you want to own an airline, buy the one airline in the Penn Global Leaders Club: United (UAL $49)—it actually turns a profit ($3B on $52B TTM). For investors who didn't buy into Palantir in the early days, is $35 to rich to take a position? Not in our opinion. This cutting edge company (their proprietary technology helped identify the whereabouts of Osama bin Laden so that the United States military could take him out) has an exemplary management team, a new headquarters in Colorado (from Silicon Valley), and a very bright future ahead of it. We wouldn't hesitate picking up more shares at this price, with the realization that volatility will continue to whipsaw the shares. |
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PLTR $22
07 Feb 2024 |
Penn darling Palantir soars 31% in one session on monster quarter
Sometimes CNBC's Jim Cramer is just hard to listen to. On Tuesday morning, after one of our favorite companies—Palantir (PLTR $22)—spiked double digits on news of a blowout quarter, blowhard Cramer said, "No, they are reliant on fickle government contracts." I am paraphrasing just a bit, but that was the gist of his brilliant commentary. He would rather own dogs like Disney and Boeing in his "chair-ble" trust. Sorry, Jim, you yelling something at the screen doesn't make it true. Dr. Alex Karp's masterful company, which builds and deploys ultra-sophisticated data platform systems for customers, has, in fact, been focusing its attention on civilian clients as of late. Has it been paying off? Here's what Karp had to say about the company's commercial business for the quarter: "...bombastic, baller, incomprehensibly good." While so many like Cramer doubted the company's ability to move into the civilian space, we never did. Companies need products and services like this, and nobody provides them more effectively than Palantir. For the quarter, revenue rose 20%, to $608 million, while net income grew a whopping 202%. Breaking revenue down by segment, commercial sales within the US rose 70% from the same quarter last year. Despite the current fiscal challenges facing governments, that side of the business still managed to grow 11%. Palantir operated in the black each quarter of 2023. Every company from every industry is throwing around the AI acronym these days, but Palantir is one of the few firms which will actually exceed expectations in this new realm. Keep in mind that this super-secretive firm was originally funded by the CIA's venture capital arm, and has been an outspoken advocate for America's interests around the world. Remaining on the cutting edge of advanced technologies is in its DNA. In a recent discussion with Wall Street analysts, Karp laid out his strategic plans on artificial intelligence: "Just take the whole market." If anyone can do it, it is Palantir. We have owned Palantir in the New Frontier Fund since the day it went public, buying in at $10 per share. It is one of our strongest conviction companies going forward. |
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PLTR $18
02 Nov 2023 |
Investors were worried about Palantir’s commercial business; we weren’t
There are few companies with which we have a stronger conviction than data analytics firm Palantir (PLTR $18). Analysts may have had their doubts (and still do), but we never have. This secretive, black box organization, which gained acclaim for its assistance in tracking down Osama Bin Laden, has garnered the trust of domestic intelligence agencies and friendly governments around the world (it won’t do business with countries it considers adversarial to the US) for years, but many didn’t believe they could bridge the gap in the private sector. The latest earnings report dispels that myth. Shares of Palantir spiked 20% higher after the company beat Q3 expectations both on the top and bottom line. Revenue rose 17%, to $558 million, while EPS came in at seven cents versus one cent a year earlier. The source of that growth is what we find most interesting. While government revenue rose a healthy 12%, commercial market revenue spiked nearly twice that amount, growing 23% for the quarter. This was the area which had so many doubters. Another standout: CEO Alex Karp cited the firm’s Artificial Intelligence Platform (AIP), which saw usage triple over the course of the quarter, as a growth driver going forward. He expects AIP’s revenue run rate to hit $1 billion by 2025. The company also raised its full year revenue outlook for 2023—something we don’t recall one other firm doing this year. Palantir currently offers three advanced platforms: Gotham for government agency use, Metropolis for financial services firms, and Foundry for large non-financial companies. Additionally, the firm is expanding into the health care, energy, and manufacturing sectors. Palantir is based out of Denver, Colorado, moving its headquarters from a “less hospitable” Silicon Valley a few years ago. The growth potential for Palantir, in our opinion, is nearly unlimited. Wonderfully (for astute investors), the company also has a lot of detractors in the analyst world who simply fail to recognize that potential. Efficient Market Hypothesis is a joke. |
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PLTR $10
09 May 2023 |
Palantir shares soar 25% after strong earnings report, new AI tool announcement
Super-secretive data mining company Palantir (PLTR $10) saw its shares rise 25% following two announcements: quarterly earnings beat estimates and the firm is launching a major new artificial intelligence platform. As for the first-quarter earnings report, revenue came in at $525 million, an 18% jump over Q1 of 2022, while GAAP net income hit $17 million—the second quarter in a row of GAAP profitability. CEO Alex Karp told shareholders he is confident the company will remain profitable “each quarter throughout the end of the year.” Adjusted income from operations came in at $125 million, well ahead of management’s projections for $91 million to $95 million. Government revenue rose 20% year-on-year, while commercial revenue—a major strategic focus—rose 39% from the previous quarter (15% year-on-year). Those figures should have been enough to give PLTR shares a nice bump, but the exciting news came with the announcement of the company’s new AI tool, dubbed “AIP,” or AI Platform. Karp said he hasn’t seen demand like this (for a new product) in his twenty years at the company. Imagine a battlefield commander able to access a tool which displays and analyzes intel on enemy targets, identifies potentially hostile situations, proposes battle plans, and sends those plans to combatants in the field for execution. If not revolutionary, it is certainly an enormous evolutionary step. AIP isn’t just for the military, however. Imagine the manager of a major shipping warehouse which lies in the path of a hurricane. Using private company data, AIP can analyze distribution at the warehouse for areas which are most likely to be affected, decide whether to expedite, delay, or cancel orders, and forecast the impact to revenues based on likely scenarios. All without writing one line of code. Karp says that within days of having the tool, customers will be able to build their own “collaborative AI agent.” The potential is staggering. Investors seemed to agree. We have owned Palantir in the New Frontier Fund since its IPO and have no intention of selling it when it hits (again) our first target price of $20/share. This is an exceptional company unmatched in its critically important industry. |
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PLTR $9
14 Feb 23 |
Palantir soars after the company announces its first profitable quarter
Shares of data software company and Penn New Frontier Fund member Palantir (PLTR $9) soared double digits after the company reported its first quarterly profit, earning $31 million in Q4. Revenues rose 18% from a year ago, to $509 million, with government revenue jumping 23% and commercial sales growing by 11%. CFO David Glazer said he expects that rate of growth to continue throughout 2023. Denver-based Palantir aggregates massive amounts of data to produce usable, actionable information for its government and civilian clients. As our favorite example, the company was essential in collecting and analyzing the data which ultimately allowed US forces to track down and kill terrorist Osama bin Laden. Palantir’s customer mix is roughly 60% government and 40% civilian sector, respectively, with 43% of its revenues emanating from outside of the US. As a policy, the company will only deal with nation-states aligned with the values of the United States—no bad actors welcome. With cash on hand of $2.5 billion, Palantir holds no debt on its books. The company’s three platforms, Palantir Gotham, Palantir Foundry, and Palantir Apollo, are unrivaled in the industry, and we fully expect the firm to maintain its benchmark position. We opened our position in the Penn New Frontier Fund within minutes of its IPO, purchasing shares roughly where they now sit. We maintain our $20 price target on the shares and would not be a seller once that level is reached. |
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MSFT $242
25 Jan 2023 |
Microsoft had a strong quarter; it was the guidance which spooked investors
For the fiscal second quarter—ended 31 December—Microsoft (MSFT $242) posted revenues of $52.7 billion—a record high. Earnings (diluted) came in at $2.20 per share, or several cents above expectations. With everyone bracing for a disastrous earnings season with respect to tech stocks, investors breathed a sigh of relief, driving MSFT shares up 5% in after-hours trading. A rather sobering conference call and muted guidance quickly took those gains back, but we continue to see the software giant as an undervalued gem sitting at an attractive price. Satya Nadella, who took charge of the company nearly a decade ago (hard to believe), immediately began reshaping Microsoft as a dominant cloud player, with Azure serving as the cornerstone. To say that strategy is paying off would be an understatement. Many other CEOs would have continued to rely on legacy moneymakers; in the case of Microsoft, that would have meant its More Personal Computing segment. Overall, that segment was down 19% for the quarter (yes, currency headwinds did account for a few percentage points); Xbox revenues fell 12%, while device revenues (think Surface) fell a stunning 39%. It is a good thing Nadella came along a decade ago and began reshaping the company’s strategic vision. The Intelligence Cloud unit, which houses Azure, was up 18% in fiscal Q2, and would have been up 24% in constant currency (CC). The Productivity and Business Processes segment, which includes the massively successful Office 365 division as well as the LinkedIn unit, rose 7%. Finally, search and news ad revenue—minus traffic acquisition costs—was up 10%. Other than the weaker-than-expected March guidance and the fact that Microsoft will be laying off some 5% of its workforce (10,000 workers), it really wasn’t a bad quarter at all. Unless you happen to be one of those unfortunate workers, of course. Microsoft remains a core holding within the Penn Global Leaders Club and is now up some 476% since we added it. Satya Nadella was the main catalyst for its addition to the Club. We would place a fair value on the shares at $320. |
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PLTR
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Palantir spikes on news of its partnership with PG&E to help manage California's electric grid
(19 Jan 2021) We bought data mining firm Palantir (PLTR $27) on IPO day as a long-term investment, not a short-term trade. To the chagrin of the short-sellers and naysayers, that investment continues to grow. One of the knocks we have heard leveled at the company is that they rely too heavily on too few major clients for a bulk of their revenues. Lose any of these government agencies or corporate clients, the story goes, and the company is in dire straits. We see just the opposite happening: Palantir will continue to widen out its customer base, attracting new companies across a wide array of industries and market caps with its incredibly powerful, outcome-driven software platform; a platform which sifts through enormous amounts of raw data and produces actionable information. Case in point, the Denver-based firm (they moved out of California late last year) just inked a deal with regulated California utilities provider PG&E (PCG $12), the company at the epicenter of the fire-induced outages plaguing the state over the past few years. The goal is straightforward: enhance the safety and reliability of California's power grid. Palantir's Foundry software platform will allow managers at the utility, which provides power to 5.3 million California households, the ability to view and navigate a real-time visual of the power grid, enabling them to act on a moment's notice. Fires sparked by PG&E's power lines have led to payouts for damages in excess of $25 billion over the past four years. Think PG&E didn't do its due diligence before hiring Palantir? There are a lot of tech companies with valuations in the stratosphere; and there are a lot of tech companies which will come crashing back to earth this year. When the tech correction hits, PLTR shares will probably get caught in the crossfire, but we would probably view that as a great opportunity to add to our holding. |
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PLTR
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Penn member Palantir surges double digits after news of big hedge fund purchases
(17 Nov 2020) It is fair to say that super-secret data mining firm Palantir (PLTR $18) was our most highly-anticipated IPO ever, as we were writing about the company—whose data fingered the precise location of Osama bin Laden for the DoD—eighteen months before it went public. Within five minutes of the IPO, we had secured PLTR for clients and placed the firm in the Penn New Frontier Fund. Now, less than seven weeks later, our position is trading about 70% higher with plenty of growth potential ahead. Shares spiked another 12% in one session this week after it was disclosed that Steve Cohen's hedge fund, Point72 Asset Management LP, purchased nearly 30 million shares in the third quarter. Another fund, Anchorage Capital Group, acquired 3 million shares in Q3. Palantir offers highly-sophisticated data mining services to government agencies and corporations around the world. Management has a strict policy, however, of only doing business with staunch US allies; e.g., the company would not do business with Chinese entities. Naysaying analysts expressed doubts around the time of the IPO that the firm could expand their customer base substantially considering the amount government agencies pay for the sensitive information, and the company's reliance on its biggest clients for revenue. Those arguments were muted after Palantir's first earnings report as a publicly-traded entity: revenues grew 52% and full-year guidance was raised to $1.072 billion—a 44% growth rate from a year earlier. PLTR holds Position #6 (out of 24) in the Penn New Frontier Fund, our emerging technologies portfolio. |
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RXT
AMZN |
Why does Amazon want to buy warmed-over Rackspace shares?
(19 Aug 2020) Rackspace (RXT $15-$20-$20) is an end-to-end cloud services provider for companies of all sizes. From web hosting to managing a firm's cloud experience—to include cybersecurity—RXT works across the various platforms (Amazon Web Services, Azure, OpenStack) to create a seamless digital experience for customers. When the firm IPO'd on 05 August, tumbling 20% on the first day, it must have felt a sense of déjà vu, as it had a nearly identical experience the last time it went public—in August of 2008. Four years ago, private-equity group Apollo Global Management took Rackspace private in a deal valued at north of $4 billion, then unloaded all of that debt off on the company it just brought back to the public market. As of right now, RXT has a market cap of $3.8 billion and long-term debt of $4.8 billion, and that market cap is so high only due to a 22% one-week run-up in the share price. Which leads us to the real story. RXT shares rose from around $16 to above $20 on news that Amazon is in talks to invest in the tech services provider. Why would Amazon, a competitor in one sense and a partner in another, want to become a minority shareholder in Rackspace? The only answer that makes sense to us is that Amazon may feel it can steer Rackspace customers away from using Microsoft Azure, the Google Cloud, and other platforms and toward AWS. The legality of that seems questionable. From a strictly fiscal standpoint, looking at RXT's financials, the move doesn't make much sense. Let's see if Amazon's chief cloud competitors have anything to say about the deal. |
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MSFT
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We love Microsoft's planned deal to buy TikTok's US business
(04 Aug 2020) Odds were very good that the Trump administration was about to ban the use of TikTok in the United States on grounds that the Chinese-based company was a conduit for the transfer of personal data on Americans into the hands of the communist regime. Then Microsoft (MSFT $131-$217-$218) CEO Satya Nadella, a refreshingly non-partisan figure, decided his firm might just want to make a bid for the US part of the massively popular social media platform. After talking with the president over the weekend, it appears that Nadella may get his wish, potentially purchasing the platform's operations in the US, Canada, Australia, and New Zealand from parent company ByteDance Ltd. Microsoft, one of the 40 holdings in the Penn Global Leaders Club, already had a lot going for it, but this acquisition would make the firm a real player in the lucrative advertising world of social media. With one purchase, albeit a big one, Microsoft would bring nearly 100 million users into its ecosystem, greatly expanding its footprint among 18-34 year olds. While the government-controlled Chinese press labelled the potential purchase a "smash and grab" by the US, we believe the deal will get done, assuming Nadella can convince both the administration and The Committee on Foreign Investment in the United States (CFIUS) that it will put the proper security measures in place for users. Investors applauded the potential move, driving the price of Microsoft shares up over 5% on Monday. ByteDance CEO Zhang Yiming has been labelled a traitor and a coward on Chinese social media. the reason? He dared to praise the freedom of speech in the United States, "unlike in China, where opinions are one-sided." Yiming's Weibo account (Weibo is an enormous Chinese social media site) was suspended after the pro-US comments were made. Update: Apple (AAPL) is now rumored to also be interested in purchasing the assets. |
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Palantir
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Our highly-touted data analytics firm, Palantir, files to go public
(07 Jul 2020) We have had privately-held data analytics firm Palantir, co-founded by Peter Thiel, on our radar for at least two years. Now, it appears we are getting closer to being able to purchase shares in the firm, as it filed confidential draft registration paperwork with the SEC this week. Founded in 2004 by Thiel, current CEO Alex Karp, and two others, Palantir's analytics are credited with helping US troops locate—and ultimately kill—Osama bin Laden. With a who's who list of government and corporate clients and a treasure trove of advanced data mining tools, the company should exceed revenues of $1 billion this year. In addition to its estimated market cap of $20 billion, the Palo Alto firm is in the midst of raising almost $1 billion in new capital. While the confidential SEC filing does not guarantee a 2020 IPO for Palantir, one thing is sure: we will be owners on the first day it begins trading. |
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IBM
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CEO Ginni Rometty was one of the reasons we owned IBM, so what does her departure mean for shares of Big Blue? (03 Feb 2020) We have often pointed to Virginia "Ginni" Rometty as one of the best CEOs in the country. While shares of pioneering tech company IBM (IBM $127-$144-$153) have struggled under her tenure, she is the one responsible for taking the helm and steering the 109-year-old firm in a different direction—away from its legacy hardware business and into the lucrative world of cloud computing. That is why we immediately got concerned for our Penn Global Leaders Club holding when it was announced that she would be leaving the firm in April. Our concerns were assuaged when we saw who would be taking over: Arvind Krishna is the wonkish Senior Vice President for Cloud and Cognitive Software at the firm, and the principal architect behind IBM's acquisition of Red Hat, a leading cloud and open-source software player. While "wonkish" is not typically an adjective we want to hear associated with a chief executive, that moniker has also been applied to Satya Nadella, the adroit leader responsible for Microsoft's (MSFT) big turnaround. The two men appear to be eerily similar. Both are deep tech gurus with strong engineering backgrounds (Krishna has a PhD in electrical and computer engineering), and both ran the cloud computing business at their respective companies before being elevated to the top spot. The icing on the cake? Red Hat's highly-skilled CEO, Jim Whitehurst, will be Krishna's second-in-command, serving as IBM's new president. Krishna brings a brilliant tech mind to the table, while Whitehurst, who attended the London School of Business and carries an MBA from Harvard, brings the strong management background. Both are scheduled to take on their new roles on the 6th of April. In addition to IBM's quite low (for a tech company) multiple of 14, the attractive 4.5% dividend is a nice bonus for yield-starved investors. It is too early to tell whether or not Krishna will be another Nadella, but we like the odds.
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XRX
FUJIY |
Xerox, Fujifilm fight takes another nasty turn. (25 Jun 2018) The original deal was for Xerox (XRX $26-$26-$37) to, for all intents and purposes, sell itself to Japan's Fujifilm (FUJIY $35-$39-$43) in a $6 billion deal, at the "urging" of activist shareholder Carl Icahn. Then, Icahn nixed the merger which he had urged by saying it undervalued Xerox, and he proceeded to get the CEO replaced and an overhaul of the board. Fujifilm sued for breach of contract, demanding a $1 billion breakup fee. Acting CEO John Visentin then sent a nasty letter to Fuji, claiming Fujifilm's internal accounting issues at Fuji Xerox (the 56-year-old joint venture between the two firms) led to the deal being called off. The latest: Xerox announced it will begin sourcing products from other vendors and does not expect to renew the Fuji Xerox joint venture when it expires in 2021. How will the courts rule on the $1 billion lawsuit? Early indications from the judge do not bode well for Fujifilm. In 1999, Xerox had a market cap of $26 billion. At $26 per share today, its market cap is sitting at $6.5 billion.
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XRX
FUJIF |
Did Icahn get what he wanted? Xerox to be bought out by Japan's Fujifilm
Update: Icahn nixed the deal at the last minute, saying it undervalued Xerox. Expect a Fujifilm lawsuit. (31 Jan 2018) A few weeks ago we reported that activist investor Carl Icahn and another major shareholder were pushing for serious changes at iconic US tech company Xerox (XRX $27-$34-$37). Well, they got what they wished for—the company which was a breeding ground for the best and brightest tech minds in the 1970s, the company which gave us the means to interact with a computer without command lines and DOS prompts, the company which created bitmapping and the graphical user interface (GUI), has been sold...to Japanese imaging company Fujifilm. It's a sad end to such a storied firm, but one which buttresses our business mantra: regardless of the industry, companies thrive or die by strong or weak leadership. Fujifilm will own a controlling stake in the new firm, which will be rolled into the two's 60-year-old joint venture, Fuji Xerox. Didn't Don Draper handle that account? |
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XRX
CNDT |
Carl Icahn is pushing for beleaguered Xerox to put itself up for sale
(22 Jan 2018) Before the great tech bubble burst of 2000, Xerox (XRX $26-$32-$34) had a market cap of $26 billion and a share price of $168. Today, the IT services company is a shell of its former self, holding a mid-cap valuation of $8 billion and, seemingly, lost in the woods strategically. Now, two major shareholders are demanding something be done. Hedge fund manager Carl Icahn and shareholder Darwin Deason have called for CEO Jeff Jacobson to be replaced, the company's one-sided deal with Fujifilm Holdings to be terminated or renegotiated, and a strategic review of the viability of selling the company. After spinning off the company's most forward-looking unit—Conduent (CNDT)—last year, the question becomes who would possibly want what remains? |
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IBM
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IBM beats on top and bottom line in Q3 as the tech company's seismic strategic shift continues
(18 Oct 2017) Despite marking its 22nd straight quarter of year-over-year revenue declines, computer giant IBM (IBM $140-$147-$183) did outperform analysts' expectations in the third quarter, beating estimates for both top-line revenues and bottom-line profits. The company had sales of $19.15 billion for the period and earnings of $3.30 per share, versus estimates for $18.6 billion and $3.28, respectively. The stock was up about 6% in pre-market trading on the report. IBM is in the midst of a major strategic transformation, shedding its "old technology" lines and embracing artificial intelligence, cloud computing, and business analytics. The company said that revenue from these new technologies grew 11% over the trailing twelve months and now represents roughly 45% of IBM's total revenue. So much for Barclay's downgrade (see below). |
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IBM
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(18 Jul 2017) Barclays downgrades price target on IBM as the company's move to cloud-based computing continues to flounder
Barclays analyst Mark Moskowitz reiterated his underweight rating on tech blue-chip IBM and downgraded his target price on the shares from $141 to $132. The analyst points out that the company's move into cloud-based computing has been extremely costly but the revenue impact has been negligible. Shares of IBM are currently trading at $154. This latest quarter represents—hold onto your hat—the 21st consecutive quarterly drop for the once-invincible tech company. |
(29 Mar 2017) Computer Sciences Corp spikes after joining S&P 500. Virginia-based IT services provider Computer Sciences Corp (CSC $32-$73-$72) jumped more than 5% on Wednesday—hitting a new 52-week high—after it was announced that the $10 billion company would replace Southwestern Energy (SWN $7-$8-$16) in the S&P 500. SWN, which has seen its market cap fall by about half, to $4 billion, will take CSC's place in the S&P MidCap 400. Founded in 1959, Computer Sciences has 66,000 employees and is located in over 60 countries. Interestingly, CSC is about to merge with the Enterprise Services division of Hewlett Packard (HPE $15-$24-$25), with the new entity becoming DXC Technology.
(05 Mar 2017) Is quantum computing the key to IBM's grand revival? International Business Machines (IBM $138-$179-183) was once the benchmark global leader in computing technology. Over the past few decades, however, it lost that moniker to companies like Microsoft (MSFT $48-$65-$66) and Apple (AAPL $89-$139-$140). Now, with the company's deep research into the field of quantum computing, it is beginning to look like a potential turnaround story. Quantum computing, unlike conventional computing with its binary system of strings limited to the digits 0 and 1, is based on quantum physics which, one day, could allow transistors to process information literally millions of times faster. On the back of its Watson platform, IBM is also teaming up with Salesforce.com (CRM $66-$83-$84) in a strategic partnership focused on creating new business applications based on the firms' work in the area of artificial intelligence (AI).