Why Palantir's Rally Stalled

When Palantir (NYSE:PLTR) rallied toward $30 last month, the software giant by market capitalization looked like it would retake 52-week highs. Instead, the stock faded. The army contract wins on Oct. 6 failed to attract more stock buyers.

Palantir announced that the U.S. Army rewarded it with an $823-million software contract. For much of the year, the firm posted contracts of negligible size. Still, bullish investors guessed that customers would renew the small contracts with bigger amounts.

The army wants Palantir Gotham Platform to support its Army Intelligence’s Capability Drop 2 program. This will facilitate its system modernization as it migrates legacy programs. Palantir stock probably failed to rally because the contract size, while large, will not show up on Palantir’s balance sheet immediately. It gets paid through the life of the contract. Still, the scope of the work is large enough that companies with a similarly sized budget may select Palantir.

Risks

Palantir may have trouble scaling its operations to maximize profits. If it wins new customers, it needs to hire more staff to support the business growth. Short-term profits will not impress investors. Since profit growth takes a few years to play out, investors need a long-term time horizon before buying PLTR stock.