Palantir Technologies (PLTR 4.65%) is taking its analytic and artificial intelligence (AI) expertise to outer space after forming a strategic partnership with Starlab Space.
Let's take a look at the deal and whether this could help send the stock to the moon and beyond.
Starlab space partnership
Already a mission-critical partner to the U.S. and other governments around the globe, as well as the public sector, Palantir is looking to conquer space. The company struck a deal with Starlab to become its exclusive supplier of enterprise-wide software data management solutions for its commercial space station.
Starlab is a joint venture (JV) between Voyager Space, Airbus, Mitsubishi, and MDA Space that is working to build and operate a commercial space station. The JV's goal is to maintain a human presence in low-Earth orbit and transition research and science from the International Space Station, operated by five separate government space agencies, to commercial space stations.
Starlab is trying to get its space station into orbit in 2028, just ahead of when the International Space Station is set to be decommissioned in 2030. The JV said Palantir's technology will help identify potential issues and predict maintenance, prolonging the life of critical components. It added that they will use "data modeling through digital twins and AI technologies to enhance Starlab's operations throughout the enterprise."
This isn't Palantir's first contract involving outer space. Since 2021, the company has been working with the U.S. Space Force, a branch of the U.S. armed forces, by providing cloud and analytic services for the Warp Core project. Last year, the company extended three contracts with the Space Force and the U.S. Air Force worth a combined $110 million.
While the terms of Palantir's Starlab partnership were not disclosed, it is yet another example of how the company's technology is being selected when advanced mission-critical solutions are needed.
Image source: Getty Images.
Can the stock head to the stars?
Palantir's Starlab win is another example of the company's inroads into the commercial space, which has seen strong growth recently. The segment had 27% revenue growth in the first quarter to $299 million, with U.S. commercial growth of 40% to $150 million.
The company is seeing more types of industries adopt analytical and AIP (AI platform) solutions, as evidenced by the 69% growth in U.S. commercial customers it saw in the quarter. To help draw in commercial customers, the company puts together boot camps to quickly teach them the skills they need to employ AIP and solve their own complex issues.
The problem that Palantir has run into is that its government revenue growth has slowed, particularly with the U.S. government. Government revenue grew 16% in the quarter to $335 million, with U.S. government growth of 12% to $257 million.
That growth isn't bad, but for a company valued at a forward price-to-sales (P/S) multiple of 21 times, overall revenue growth of 21% is not enough to justify that valuation.
PLTR PS Ratio (Forward) data by YCharts
Going forward, Palantir will have to keep winning both more commercial and government contracts to justify its valuation. The Spacelab deal helps on the commercial side, while a $480 million contract win in late May with the U.S. Army for a Maven Smart System prototype certainly helps on the government side.
Its technology is considered top-notch, and its use in critical tasks, such as tracking terrorists and COVID-19, shows how important it is. That said, a lot of expectations are currently priced into the stock.
While Palantir's stock could head to the stars, until its revenue growth starts to accelerate, it could be grounded. As such, it is best to size this high-risk, high-potential-reward growth stock accordingly.
