Palantir Q4: Government Revenues Rising

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Palantir Technologies Inc, arguably one of the world’s few major “pure play” AI companies that are (at least currently) publicly traded, has had a stalwart 2023. AI has been the dominant theme for investment preferences through most of the previous year and early trends indicate that it will remain a central focus through at least two quarters of the current year.

Trends extrapolated via its latest earnings release indicate that the company has a number of positives. The nature of the company’s work, however, might be a complication of sorts for some investors.

Trend Studies

In the previous year, the company’s net income turned positive for the first time since the company went public. Evaluating key line items as a ratio relative to the reported gross profit provides additional nuance:

Source: Company Financials, Leverage Shares analysis

Perhaps the most significant item of interest is that the “revenue/gross ratio” has remained quite stable across the past three full fiscal years as has the cost of revenue. The company’s operating expenses outside of its historically-substantive stock-based compensation (SBC), however, has been growing at a rapid rate.

Interestingly, the SBC – a bone of contention for many analysts, given its rather high rates in the past even when compared to many top-of-the-line tech firms – has been easing off, with the most rapid drop occurring in 2022. It could be argued that this even helped shore up profits in the recent fiscal year (FY).

However, a comparison versus “tech” might not be entirely accurate. While the company certainly owns a number of AI-driven platforms, the “core” of AI (in the other words, the “intelligence” of an AI process) is the algorithm, which is more a collection of techniques designed for specific inferences using statistical techniques that are informed by human insight than a framework of machines with high barriers of entry for construction, ownership and operation. The involvement of “human insight” and the high likelihood of convergence towards similar inferences using different techniques make the company’s business model more akin to that of banks and management consulting firms – both types of organizations wherein the greatest cost to revenue (and the greatest driver of revenue) is the people.

Palantir is particularly well-suited for intelligence gathering and analysis (typically the domain of governments) due to its staff’s early involvement1 with Western intelligence agencies. While the company doesn’t just serve government agencies, trends in key metrics indicate that the government’s importance to the company has increased.

Source: Company Financials, Leverage Shares analysis

The average revenue from top customers continues to grow in an orderly fashion, which indicates a deepening of engagement and positively biases future revenues from legacy clients. While the company has continued to attract commercial clients and has been banking higher billings, the public sector looms large in the overall picture. Relative to FY 2021, revenues originating from the government increased a little over 7% to 51%.

The “AI solutions” market will also be one marked with high “adhesion”. This is due to the fact that most of these solutions aren’t really the “plug-and-play” type; comprehensive inference-framing drives the quality of the solution being provided. Palantir is likely to have a ready pipeline of government projects due to its lineage. Generally, governments tend to be generous yet exacting customers once an agreement is made.

In Conclusion

Given that a monopoly on achieving a specific result via the application of a specific technique isn’t a given, a choice to invest in Palantir on the back of strong commercial volumes must always come with the forewarning that it’ll likely be a buyer’s market in the private sector as the likes of Alphabet and Amazon get more involved in the “AI solutions” space that is so comprehensively dominated by the likes of Microsoft over the past year or so. Over on the public sector side, the company doesn’t exactly shy away from its involvement with U.S.-centric geopolitics both off and on the battlefield. For instance, the company has been credited as a key component2 of Ukraine’s war machine in its current conflict with the Russian Federation.

AI applications in the battlefield are a paradigm shift in modern warfare; it’s entirely probable that one day, after the matter is weighed and discussed, such AI will be considered the equivalent of a weapon. If so, companies that mostly provide such solutions might be added to Exclusionary Lists3 such as “Controversial Weapons” that are used during the construction of investment vehicles. As of 2023, over 50% of European and US funds applied exclusionary lists to screen out weapons companies. If the company’s “non-peaceful” applications’ contribution to its revenue streams were substantial enough to make it fit for exclusion, that could significantly shrink the company’s accessible investor pool – a scenario that its leadership likely wishes to avoid.

All said and done, it is clear that the company has an “adhesive” pipeline of clients in both public and private sectors. Given its products’ reported success in delivering effective battlefield solutions (and possibly also in more covert fields such as surveillance and espionage), its public sector pipeline will likely continue to grow. Whether it manages to maintain a similar degree of success in the private sector, of course, remains to be seen as the “AI race” heats up.


  1. “How Team of Geeks Cracked Spy Trade”, 4 September 2009, Wall Street Journal
  2. “How Palantir Is Shaping the Future of Warfare”, 10 July 2023, TIME Magazine
  3. “How to Exclude Weapons from Your Portfolio”, 24 February 2023, Morningstar
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Sandeep Rao


Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

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