Is Palantir’s stock too good to be true?

0:28Good morning from the Financial Times. to start your day.

0:38The White House is deciding whether to put more sanctions on Russia's shadow fleet of oil tankers. That is, if President Vladimir Putin doesn't agree to a ceasefire in Ukraine by Friday. These shadow fleets are vessels that hide their true owners. Moscow uses them to ship oil and get around Western restrictions. U.S. President Donald Trump is also, quote, strongly considering supporting a bill that calls for putting tariffs as high as 500 % on countries who keep buying Russian energy products. Now, say restrictions do go into effect on Friday. It would be the first time the Trump administration has put sanctions on Moscow since the start of his second term.

1:23Palantir is growing at an almost dizzying pace. The data analytics company reported a 48 % increase in quarterly sales this week, which is a big jump for a company that's more than two decades old. Just to put this into context, its share price has increased more than 600 % over the past year. But are investors too optimistic about Palantir? The FT's John Foley thinks so. He writes about the tech sector for ArtLikes column. Hey, John. Hey, thanks for having me. So first off, can you just give me some background on Palantir as a company? What does it do? Who does it work with? Stuff like that. Yeah, so one of the strange things about Palantir is that it is an enormously successful investment story, right?

2:07And yet, if you went out into the street and asked people what Palantir does, they would probably look at you blankly more often than not. It's not a company that people understand. And that's because what it does is very abstract and complex. It takes data that's sprawling in different places in companies and government agencies, and it creates a kind of software layer that allows them to crunch all that data in different ways and use it to make better decisions. And that can be anything from making breakfast cereal to making your drone strikes more precise. Because one of the other things to know about Palantir is that it is unapologetically interested in helping the US fight wars.

2:40The CEO, Alex Karp, literally talks about making America more lethal. That is Palantir's goal. Not everyone loves that, but it's great business. Okay, so give me the argument for Palantir being overvalued. So really simply put, when you look at how expensive Palantir is as a multiple of revenue, which is a common thing that investors look at, it's trading at about 80 times the revenue that analysts expect it to make in the next year. That's about a valuation of about$400 billion. Now, when you look at other tech companies, I couldn't find a single tech company that has ever traded at that kind of multiple.

3:13I looked at Tesla. I looked at Apple. I looked at even some of the kind of meme stock tech firms. None of them have even been close to that 80 times. It's just pure exuberance. So, as I mentioned, John, earlier this week, Palantir reported quarterly earnings. What does it have to say about its valuation? But Palette is growing really quickly. Like its revenue growth is really very impressive indeed. It grew its number of US customers by 64%. And the amount of money it made from those customers almost doubled. Now, they also have this metric that they tout. Alex Karp likes to talk about what he calls the rule of 40, which is a kind of an old Silicon Valley measurement that venture capitalists like to use.

3:52And it's where you take the percentage sales growth you're making and you add it to your operating profit margin. And if the result is more than 40, that's supposed to be a good thing. Now, Palatir's rule of 40 score is 94, which the company says is the highest that's ever been seen for an enterprise software company. I certainly can't think of one that's higher. So they would say that this valuation is deserved. And they talk somewhat obnoxiously about the haters on the earnings call on Monday. They were saying, you know, sorry, sorry, haters, you don't like how well we're doing, but suck it up.

4:26John, being one of the haters here, why single out Palantir? You know, a lot of tech companies seem to be overvalued right now. So I'm not like, I just want to be clear that I'm not a Palantir hater. They are doing really well. They've got a great product. They've got a great pitch. It's just that you can both be a really good company performing strongly and be horribly overvalued. And I think in this case, it's hard to argue that Palantir is not overvalued. And even analysts who have been very bullish on Palantir are now starting to say, this is getting a bit out of hand. Because Palantir is kind of behaving like a meme stock, and that's kind of detached from fundamentals.

5:00And that's an exaggerated version of what we've seen in a lot of tech companies. Like tech does tend to get a bit exuberant when it comes to valuations, because people just feel good about tech and AI and all that kind of stuff. Palantir just seems to be a slightly cartoonish example of what happens when investors get overexcited about an underlying good idea. John Foley is the head of the FT's Lexcom. Thanks so much for this conversation, John. Thank you.

5:30OpenAI made a big announcement yesterday. It released its first open artificial intelligence model since it launched ChatGPT three years ago. The company put out two of what's called open weight models. That means that developers will be free to both access and customize these new systems. This open weight release is OpenAI's attempt to compete with the Chinese startup DeepSeek. DeepSeek and other Chinese AI systems have taken the lead in the open source AI market, and that's spurring a large demand from developers. Now, there are some cons to the open weight models. They're often seen as higher risk than closed systems.

6:09That's because they can be customized and can't easily be recalled if there's an issue.

6:21Russian military spending soared after the country's full-scale invasion of Ukraine. This caused its economy to overheat, and it forced Russia's central bank to raise interest rates to record levels to cool things down. But now the economy is cooling down, and Russian banks are dealing with a bunch of bad loans. Here to talk about the consequences is Courtney Weaver. She covers Russia for the FT. Hey, Courtney. Hi. So how bad have things gotten for Russia's banks? So they've gotten worse, but not so bad that we're predicting a Russian banking sector collapse overnight. A recent analysis, for instance, by the Russian business outlet RBC found that five of Russia's 13 systemically important lenders had experienced a noticeable drop in net profit of at least 20 % or more in the first half of the year.

7:11and that overall almost 50 of the top 100 banks had reported a worse financial performance in the first six months of this year compared to last year. Wow, and how did things get this way? So essentially what happened is three years ago when the war started, you know, a lot of people in the West were predicting an immediate overnight collapse of the Russian economy, which didn't happen. Instead, what the Russian government did was they stabilized the ruble and they poured money into the war effort, which in turn filtered down to the Russian population to spending. And because of this, you had a real surge in inflation.

7:47And to combat this, the Russian central bank was forced to increase interest rates. So by fall of last year, they were at 21%, a historic high. And during this period, Russian companies were pushing back, saying the rates are too high, they're cutting into our profits. Banks were saying that companies are going to have trouble servicing their debt. And now we're starting to see this come to fruition. So then what's Russia doing to try and tackle this issue with bad loans? So in June, the central bank decided to lower interest rates for the first time, and they followed up again, lowering by an additional two percentage points in July.

8:23They're basically trying to prevent the majority of banks from failing. The central bank has suggested it will continue to lower rates this year and next year, that this will kind of cool down the economy further and prevent any individual banks from collapsing. You know, when you talk to economists and people who follow the Russian banking sector closely, most of them say they're not deeply worried about the sector as a whole. But the issue is you don't want individual banks to start failing and then bring down the sector more broadly or the economy more broadly. And so Russia has a lot of history of bailing out private lenders in the past and supporting them.

8:58In 2017, for instance, it had to bail out three of the largest private lenders. It spent at least a trillion rubles in the process. and they obviously would be prepared to do that again. So that's what all eyes are on now, just trying to see what they're going to do about these banks and whether the banks can recover. Courtney, say things continue to get worse for Russian banks, even with looser monetary policy and, you know, intervention from the state. What happens then? At this point, it's still early. You know, a lot of banks like Spare Bank, the largest bank, is still reporting strong profits.

9:30The banking sector as a whole is reporting strong profits. And I think it would be premature to say that tomorrow there's going to be a banking collapse in Russia. But at the same time, people are taking this as an early warning sign about the Russian economy. The Russian economy has had a really good run the past few years. All these warnings that it was going to collapse under the sanctions never came to fruition. And the troubles at some of these banks and the troubles with non-performing loans is kind of an early suggestion that not all sectors are doing as well now as they were one or two years ago.

10:02and the economy might see some sorts of signs of fraying. And at the same time, you know, Russia has to continue its war effort. And the question is, how does it continue to fund it? That's the FT's Courtney Weaver. Thanks, Courtney. Thank you. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

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