Palantir Reports Record Quarterly Revenue, Hikes Forecasts

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2:50Bloomberg Businessweek senior reporter. He's also co-host of the Everybody's Business podcast, author of The Contrarian, Peter Thiel, and Silicon Valley's Pursuit of Power. He joins us right here in our Bloomberg Interactive Broker Studio. This is Peter Thiel's company. What are you making of this? It sounds like just gangbusters. Yeah. I mean, this is a company where you have a couple of trends working in its favor. One is, and we heard it mentioned earlier, AI, Palantir is marketing itself as essentially a way for big companies to incorporate artificial intelligence in their workflows. That's obviously something lots and lots of companies are spending huge sums of money on.

3:28The other thing is this is a big defense contractor and it happens to be, and you mentioned Peter Thiel's name earlier, he's co-founder of the company. It is a company that is very close to the Trump administration. So it's both a company that is sort of well positioned in its government business, at least in the U.S. and well-positioned in its commercial business. You're seeing revenue grow. Now, I think what you see skeptical analysts say, and this is a company where there's a bit of a divide between how professionals see it and the kind of masses who are trading on platforms like Robinhood.

4:05I think a lot of analysts feel like this stock is wildly overvalued. You're talking about even at$4 billion of annual revenue, it's not a huge amount of money for a company that's worth like a half a trillion dollars in terms of market cap. But for now, you know, the market likes it. This has become, you know, it's almost a cliche to say, but it is a meme stock. It is it is both a company that has a real business, but also a company that has this very, very, you know, dedicated following. Why would you call it a meme stock? I mean, you kind of answered the question right then. You said as a dedicated following.

4:38but this is a company that has an increase in revenue of 63 percent. Analysts on average estimated a$1.09 billion in terms of revenue increase went to$1.18 billion. Average projection of$1.19 billion for sales for the current quarter that the company says it'll come in at$1.33 billion. There's some real numbers here that I think critics would say, okay, well, meme stocks don't have those kind of fundamentals. Yeah. I mean, it's different from like, Like, ha ha, this is totally a joke. That's not what I'm saying at all. What I'm saying is that the demand for this stock is happening at the retail level, just like Tesla Motors, where you see, you know, that which is another stock with similarly like very elevated price.

5:20The price to earnings ratio on this company is huge. It's really, really high. It's 691. The forward P.T.F. forward P.E. Excuse me. It's 320. I mean, like when you said before about how much in revenues and what the market cap is, it's going to take a lot of growth over and over again for multiple quarters. The ESP ratio is 60.57. Even for a tech company, even for a high growth tech company, we're talking about a very, very, very expensive stock. And that, you know, that stock either reflects the kind of new dynamics that certain equities are trading at, where if there's demand on social media and the Bloomberg story that was published gets into some of this, you know, investor Alex Karp, the CEO of Palantir, is this kind of almost like a cult-like figure, a cultural figure, certainly.

6:09shareholders call him daddy carp, you know, and, and he has, he has these antics, right? Like it's, he is this kind of larger than life figure. There is also a business story. It's not like, it's not like it's totally just hot air, right? The, the, the idea is that artificial intelligence is, is becoming more and more important. Palantir is, uh, is positioned well. What exactly do they do? They build software that essentially makes it easier for companies to organize their data and make decisions. Now, the thing you've probably, most people have probably heard most about with Palantir is the military and intelligence agencies incorporated software in their sort of, in like searching out terrorist cells and that sort of thing.

6:53Now, there's a lot of debate about just how sort of automated this is, how important it is, but it is a piece of software that is being used in more and more big companies to handle data. And that's a valuable thing because like once the software is being used by a given entity, it's kind of hard to take it out. It's kind of the same dynamics that protect lots of sellers of enterprise software. Max, this is a company that was founded back in 2004. Facebook was also founded back in 2004. I think this, a lot of people would say this was kind of a late bloomer. For a lot of years, it kind of just like got by until then suddenly it was on everybody's radar what why was it so slow to grow well i mean it took them a very long time to figure out a product and the the company was founded essentially with the idea of providing you know intelligence gathering software to the military adapting some of the security tools that peter thiel and his co-founders had used at paypal uh and and applying it in other areas that was the pitch.

7:57It took them a really long time to find a customer base. But once they did, and as they've been able to kind of build a brand and take the company public and benefit from some of these trends that I'm talking about, these cultural trends, it's really, it's gone very, very well. You know, it's interesting, too. I'm looking at the FA page on the Bloomberg. So at the end of last year, about almost 55 % of their revenue was government, and then about 45 % was commercial. And I'm just thinking they compete with, right, like Microsoft, Amazon, Google, and then some of these data specialist companies out there, whether it's Snowflake and others.

8:35I mean, is there somebody who could ultimately, you know, take over their business? I mean, do they really own their niche? No, there are other players in this space. I think a lot also a lot of the company, a lot of those competitors, companies are buying both Palantir and Microsoft. It's not like you're buying one at the expense of the other. I mean, you know, Palantir is, I think, very recently got into some litigation with a copycat product. There are other companies that are attempting to offer sort of similar kind of like data integration services. We've also seen critics over the years sort of say like this company, this is actually a consulting company kind of masquerading as a software.

9:13There's some there's a lot of debate over just how how how much it is like a product company and should be valued that way. Although, of course, like on Wall Street or sorry, on the stock market, that debate is long gone because it's being traded, you know, at multiples that are much higher than than even some very, very successful software companies. How big of a deal is it that this administration has or members of this administration have been aligned, at least philosophically, with leadership at Palantir? I mean, if you listen to Palantir, they're going to say, no, this is not political. The government is just choosing our product because it's the best product.

9:51I think if you look historically, the last Trump administration was an incredible time for Palantir. The company grew a lot. It managed to go public, won lots and lots of contracts, including taking some contracts from some other big tech companies. And if you look at what has happened over the past, whatever it is, 10 months of the Trump administration, it's great for Palantir. You had this, I mean, obviously the Doge effort, we haven't heard much about it. But like the idea of building these databases that are better going to integrate, you know, information across different agencies, that is like right up Palantir's alley.

10:26And, you know, you're seeing Alex Karp show up at the White House, show up at these dinners. They are punching above their weight in terms of influence. We should point out, though, shares of Palantir now down about a quarter of a percent here in the aftermarket. So they've definitely pulled off their highs of this session. Hey, Max, thank you so much. Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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13:31You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. Let's see what Megan Horniman has to say. She's back with us. She's Chief Investment Officer at Verdant's Capital Advisors. Firm has more than$4 billion in assets under management. Once again, with us from Hunt Valley, Maryland. Megan, good to have you here. It has been quite a bounce back from the lows back in early April. How do you describe the market environment right now? I think there's a lot of over-optimism about several things.

14:10We did get the Fed that cut rates, and that's what really the markets were focusing on prior to September. We got the Fed cutting rates. We got two of them this year. The jury's still kind of out for the December number. But we also have seen some thawing in the trading tensions since that April tiff, I guess, tariff tiff. And now you have the AI taking back over again. So you have this momentum trade that's driving these markets higher into the year end here. Worried about valuations? Absolutely. We are very worried, specifically from the MAG7, the technology. These are all looking a little bit bubble-like.

14:48I'm not saying this is a dot-com bubble, but there is the risk here for some valuation correction. Keep in mind that these valuations have driven higher on this pricing imperfection, the perfect soft landing of the economy, the perfect fix to inflation, and the Fed coming in and easing policy. This is something that's really up in the air into 2026. There is no certainty. And I think the Fed was pretty clear about that when they mentioned that the December meeting is not a foregone conclusion. Megan, you say it's not akin to the Internet bubble, but it's bubble like, but it looks bubble like. But why do you say that?

15:25Is it you know what we always hear is, well, wait, there's companies that actually have revenues and earnings. And I get that. But the company that I feel like is the nucleus of this AI trade, open AI, we have yet to really see their books. Right. It's a privately held company. They're tying up with everybody. There's this massive spend. It's hard not to feel like this is a bit heady and wonder where it all ends. Yeah. And you said it exactly. There's not a lot of clarity. This is what we're seeing is just more this euphoria around this changing technology. And we completely believe in that. And AI is going to change the way we do a lot of things.

16:03It's going to make a lot of things efficient. But we've seen this before in other market bubble type of situations where the markets just have this overly optimistic view. You can even go back to some of the times when people said, oh, home prices will never go down. We heard that in the 08, 09 crisis. So go ahead. Well, the one thing I wanted to ask you about with the AI trade, and like I said, there are companies, and we know with the hyperscalers, where we see an ROI. And we were just talking with our own Mandeep Singh about some of the numbers that we've seen. I it in Google and so on. So we do see payoffs.

16:36But having said that, the other thing we were just talking with a member of the Google and Alphabet team is about jobs that could be lost, whether it's in coding and other places. If we have an economy where a lot of people are put out of work and there's a dislocation, be it for a year, two years, five years, seven years, who knows, maybe a generation, that's got to be a problem, no? Yeah, I think, but we're not as negative on what AI can do to the job market as some people are. Let's keep in mind that some jobs will be replaced by AI. These may be some clerical type of jobs. But then if you look at a lot of other areas in this market, in the labor market, some of these jobs may just get better.

17:20Productivity, efficiency will just improve by the use of AI. So I'm not ready to say that this is a really detrimental thing to the labor market going forward. And I think that it can actually help improve quite a bit. OK, so how do you advise clients to I mean, what to do in this bubble like environment that we're in? Sit on their hands and do nothing or move a little bit away from some of these mag seven companies? Yeah, absolutely. First of all, look at your allocation. Are you overweighted to these MAG-7, to these growth sectors? Because keep in mind, just the market movement itself may have you allocated to this a lot more than you should be.

18:00So rebalance, and I know that may seem kind of boring, but it's the end of the year. Rebalance portfolios where you think is necessary, where it's overrun. The growth technology names, these are the most at risk. So any of these big high flyers that you've seen this year, those with really high multiples, these are the ones that we would start reducing. Make sure that you're more diversified than just holding on to those. Because what we have seen in historical pullbacks or corrections in the market, that sometimes when there's a valuation correction, the biggest winners are the ones that get sold because it turns into this indiscriminate selling where you're selling all the winners.

18:37So be very careful there. Make sure that your portfolio is balanced where you want to be. And don't be overweighted a substantial amount to these growth and technology large cap names. And then yet having said that, those large cap tech names are the ones that continue to, you know, provide, you know, you see the growth top and bottom line over and over again. It's kind of interesting that everybody's like, wait, time to back off. And then we see once again, another quarter or another year where that's where the momentum is. So how do you be smart about not just chasing maybe gains that won't happen or realizing the reality of our world is a big tech world.

19:12And you look at those companies and they are part of really almost all of our lives in a big way. Yeah. Just be careful of what you're paying, the price that you're paying for these names. Are you paying for earnings that are now two years forward? And that's what we see when you look at the S &P 500, which is primarily your MAG 7 stocks. You can see that earnings estimates going on to 2027. You put a reasonable valuation on that. There's really not much upside if you're looking at the fair value of the S &P 500, and that's in 2027. So just be very careful what level of earnings you're paying for and how far out, because there is a lot of uncertainty between now and 2027.

19:51So be careful paying up for that momentum. You're happy with earnings thus far? Thus far, yes, earnings have been great. But let's also keep in mind that earnings tend to beat the estimates between three and 5 % every earnings season. I'm more concerned about what we see for next year. And then now that we are starting to get some of those estimates for 27, what are people looking at going forward? What do you think is the biggest risk in a week where we have the Supreme Court taking up a case against President Trump's tariffs? If that gets undone, what would that mean for financial markets? I think the markets are looking for any kind of news because we don't really have the economic data, obviously, with the government shutdown.

20:30So they're looking for any catalyst, whether it's to the upside or downside. Unfortunately, we think there's more downside risks in the near term. But if that tariff gets undone, what would that mean for financial markets? Just got about 20 seconds. I think just just volatility, instability, because then we've all got to go back and kind of reprice what the tariff expectations may be. And then what will the Trump administration do? What's the next lever that they may have to pull in order to get the tariffs through? It'd be kind of messy. That's for sure. All right, Megan, thanks so much. You're listening to the Bloomberg Business Week daily podcast.

21:03Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. Ryan Gould is a Bloomberg News US IPO and deals reporter. Red Brown is Bloomberg News consumer reporter. They both join us here in the Bloomberg Interactive Brokers Studio. Kenview surging as much as 20 % earlier in the session. Kimberly Clark falling as much as 14.5 % earlier in the session. Now down just 14%. But still, investors are sending the message. When I heard this news this morning, I'm thinking to myself, where did this come from?

21:38Well, we're on the call. We're on our editorial call. And I'm saying who wants to deal with the litigation that Tylenol could potentially see as a result of being front and center in this. These comments that President Trump and RFK said at the White House earlier this year read. Kenview is not just Tylenol, Zyrtec, Listerine, Band-Aid, Neutrogena and more. But what's the litigation risk here for Kimberly Clark? Obviously, it's hard to say right now. This is a very fast-moving story when it comes to Tylenol. We have just that one lawsuit right now in Texas. There's been some petitions, some consumer petitions to have label change on Tylenol as well.

22:23But I think what you're getting in the reaction in Kimberly Clark shares today do kind of underline that that is what is on people's mind, right? Is this legal risk? There is an argument to be made that Kenview is a really great property. Tim, you just named off all of those marquee brands, right? So I think there's a consensus among the analysts that this is probably a long-term play, potentially maybe getting a really good deal here, considering how poorly Kenview shares have done so far this year. That's not just the legal risk. It's also just bad performance as well, but remains to be seen, I guess, on this legal risk question.

22:59We should remind everybody, this is the consumer products division of Johnson & Johnson. It was spun off back in 2023. Shares have struggled this year. There's the Bayer-Monsanto situation that one analyst brought up, Carol, earlier today. Red and company writing that Vital Knowledge's Adam Christofulli said that there could be concern about whether the Kleenex maker is getting itself into a Bayer-Monsanto situation, referring to Bayer's acquisition of Monsanto back in 2018, which laden the German pharmaceutical company with legal costs. Coulda, woulda, shoulda. We have to, I guess, see how it plays out ultimately.

23:32We should point out shares of Kenview are down 23 % year-to-date. Ryan, come on in on this. I mean, they are paying a 46 premium to Kenview's closing price on Friday. Mind you, the share price has been beaten up a little bit. What's the thinking? What are you hearing from bankers about why this has come together and why now? Well, just on the buyer Monsanto piece, I think it's something that we're also hearing this morning. I think, depending on who you speak to, I think on the Kenview side, there's a view that you could in no way make that comparison. These are very, very different types of companies.

24:01I think, you know, we're just talking about the litigation risk. But at the same time, I thought it was really interesting. And I think Mike Hsu, the CEO of Kimberley, was out this morning saying that in the statement that the world's foremost scientific or medical regulatory and legal experts had kind of concluded that, you know, this is something you need to go for. I mean, to go on the record saying such things so publicly, I think, is one thing. But the other piece of this is that, you know, there's a massive dispute within Kenview. as to what the actual liability is. And so depending on who you speak to, I think there's a view that there could actually be no liability at all, which, you know, that's going to be for a court to decide and maybe not for me to speculate on, but that's what this comes down to, which is why I think you can have people come out and say things like, you know, this is a generational value creation opportunity.

24:46But they're talking about it, that there is potentially a liability issue, the folks that can view. Yeah, oh no, for sure. And I think there's, you know, a couple of people I was speaking to who kind of said that they would probably take the under on, you know, exactly how much market cap Canview has lost in this whole debacle, vis-a-vis the liability that they'll end up with. That's one view. But, you know, you could also say the flip side, right? Because who knows how this is going to turn out? And, you know, this could be a case study at HPS in a few years' time. So we should point out that Canview, at its highs, up almost 20 % in today's session, as much as$17.18 a share here.

25:24Reed, come back in on this, because I do wonder, is there anybody else who might come in and say we're interested or not necessarily? I haven't heard anything on that. I'd be interested in what Ryan has to say on that bit. But there was a lot of interest in the company. Like I said, it is marquee brands. Tylenol probably chief among them, despite some of these risks that they did that are overhanging that unit. But, you know, the company has all of the pieces to do well over the long term. And I think that is why there is the conviction that this has good long term potential. And then just on the legal issue there, you know, Les Ryan makes a point like they have the top scientists going in and speaking with them in the room.