Palantir Stock: Alex Karp Says That Your Pain Is PLTR’s Gain

Palantir Technologies’ (NYSE:PLTR) CEO Alex Karp recently spoke with venture capitalist Stan Druckenmiller about the macroeconomic and geopolitical environment and how it impacts PLTR. In that conversation, Mr. Karp emphasized that the more painful the economic environment gets for the average person and the closer the world drifts towards world war 3, the better it is for PLTR. In this article, we offer our take on how the current macroeconomic situation is likely to impact PLTR in the coming years.

Karp’s Conversation With Druckenmiller

Mr. Karp’s conversation with Stan Druckenmiller touched on a wide range of topics, including how PLTR’s unique culture facilitates its ability to attract and retain top talent, the outlook for the stock market over the next decade, and how PLTR’s products are helping Ukraine defeat Russia. However, the portion of the conversation that most got our attention as analysts of the stock was when the CEO made a point about the major catalyst for PLTR’s business – particularly its lagging international business – in the current environment:

What is very good for us in general is that this energy crisis, inflation, and geopolitical turmoil will break [companies’] internal IT systems. What is driving our sales outside of America is – if you are a large manufacturer and all of a sudden you have to repurpose [your supply chain due to geopolitical turmoil and disruption] – this perfectly maps into [demand for our products].

Effectively, Mr. Karp was saying that the world’s pain is PLTR’s gain. When times get tough, PLTR stands out from the crowd as one of the few companies that can help provide truly transformative solutions to the world’s problems.

The Major Macro Tailwinds For Palantir

Based on the context of these comments, the three big crises that should continue to catalyze growing international demand for PLTR’s products are:

1. Energy shortages
2. Raging inflation
3. Geopolitical turmoil between Russia, China, and perhaps a few other states against the West

The energy crisis hopefully will not be longer than an intermediate term challenge, though it will undoubtedly take time for Europe to fully replace Russian gas imports, especially given that Saudi Arabia seems to be aligning itself with the Russians on the issue of cutting oil production. The United States and Canada have the capacity to help offset some of this supply shock and Europe is making aggressive strides to increase solar and wind energy production, but there is still a significant deficit that needs to be overcome. When there are mission-critical shortages such as energy, PLTR’s ability to maximize efficiencies becomes critical. As a result, there could very well be growing demand for PLTR’s products among European governments and institutions as optimizing energy consumption, production, and distribution are becoming increasingly critical on the continent.

Regarding inflation: given how aggressively policy makers – especially at the Federal Reserve – appear primed to attack it and the growing likelihood of a meaningful recession, it appears probable that the high single digit inflation levels should not stick with us for too much longer. On top of that, longer term, technological innovations in the areas of artificial intelligence and automation are expected to exert significant deflationary forces on the economy as well given that they will dramatically reduce the need for human labor per unit of output.

In fact, these technological innovations are being further catalyzed by the current runaway inflation and ongoing labor shortage in key sectors of the economy. That is serving as a major boon to PLTR’s business as its Foundry business is helping large corporations cut costs and run more smoothly and efficiently in order to battle inflation. On top of that, its artificial intelligence and data analytics products are also powering a growing number of disruptive start-ups that are on missions to meaningfully cut costs and improve productivity in a number of industries that have suffered from soaring costs for years (such as healthcare). As a result, while we do not necessarily expect inflation to be a major problem for too much longer, its current presence is certainly serving as a tailwind for PLTR’s Foundry business.

Finally, the growing geopolitical turmoil figures to be a long-term condition that will fuel growth in PLTR’s Gotham business for many years, particularly internationally. As Mr. Druckenmiller said during his conversation with Mr. Karp:

I’ll never forget my partner who interviewed you a year or two ago, said to me, during the Trump reign, he said, “I don’t think people realize this will be the peak of US-China relations in the next 25 years. They’re not gonna do anything but get worse.” And it sounded so ridiculous at the time it was, three or four years ago and it looks like that’s we’re on that track.

Given that China in particular is charging full speed ahead with its investments in developing and weaponizing artificial intelligence and data analytics technologies, companies like PLTR that play a mission critical role in national defense for the United States will very likely continue to enjoy substantial and growing business from the U.S. Government and quite possibly a growing number of its allies. Just the other day, CCP head Xi Jinping doubled down on his country’s commitment to winning the technology war with the United States, saying that the CCP would build “self-reliance and strength” in technology by improving China’s education system and attracting foreign experts:

Education, technology and talent provide fundamental and strategic support to China’s modernization… [China] must insist that technology is the foremost productive force, that talent is the foremost resource, and that innovation is the foremost impetus… Innovation will remain at the heart of China’s modernization drive.

With the sheer number of resources in terms of degreed engineers and financial might along with the grit and strong work ethic of Chinese entrepreneurs and technology workers that people like Elon Musk and Charlie Munger have marveled about, the United States and the West at large is going to have its hands full. As a result, they will desperately need the best and brightest minds at companies like PLTR to propel them to victory in this software arms race. This should lead to nothing but growing demand for PLTR’s innovative products.

PLTR Stock: Investor Takeaway

PLTR is far from a slam-dunk investment right now. The company is still far from being GAAP profitable (though management said on its latest earnings call that the “combination of radical optionality on expenses and what we perceive to be macro conditions converging with product conditions allow us to kind of see what we think will be a profitable company in 2025”) and continues to issue a lot of shares to employees and management via stock-based compensation. On top of that, growth numbers – especially in the government business – disappointed last quarter, leading some to fret that the company’s growth is beginning to decelerate.

While these complaints are valid, there is another side of the story. Macro conditions – especially the long-term geopolitical part of the equation – could not be more favorable for PLTR and the trend appears to indicate that conditions will only further favor PLTR as we move further into this decade and likely beyond. On top of that, PLTR has ~$2.5 billion in cash on hand with no debt, so it has little to no risk of insolvency for the foreseeable future and therefore is not directly impacted by rising interest rates in that sense. Meanwhile, it continues to attract and retain top industry talent and produce highly innovative products. With the stock trading below $8 per share which is near its all-time publicly traded lows, it looks like now could be a great time to buy for those with a long-term outlook and a stomach for volatility.