Palantir is displacing bespoke systems-integration work with a software platform that puts decision-grade data in front of the people actually making operating decisions. This positions Palantir as a key player in the ongoing technological disruption across various industries, highlighting its potential for long-term growth. The company's ability to provide critical data solutions creates a competitive moat, making it difficult for competitors to replicate its business model.

Palantir, another AI superstar, currently trades at a market cap of ~$400B, while its annual revenues are only ~$4B. In other words, Palantir trades at a multiple of more than 100 of its sales! This multiple is much higher than the historical average multiple of 17 for the S&P 500. The growing popularity of passive investments among investors worldwide is also fueling the great price increases of the U.S. mega-caps. As this reality is highly artificial in economic terms, it is clear that we will soon see a great decline in the number of investors buying shares in these giant companies, thus causing severe ramifications for those companies and their stock.

The letter discusses the implications of export-control regimes on AI models and how this affects companies like Palantir. It highlights that Palantir, as a US defense contractor, has advised its customers to pursue corporate 'sovereignty' through open-weight models to control their fate amidst concerns over revocable APIs. This reflects a broader trend where enterprise buyers are diversifying towards models that cannot be weaponized, indicating a shift in the market dynamics surrounding AI technologies.

Shares of Palantir lost value as concerns about intensifying competition from frontier model artificial intelligence companies and the durability of growth in its government business weighed on expectations for the company’s future growth. The team has growing concerns regarding the sustainability of Palantir's growth trajectory, particularly in light of the competitive landscape in AI.

Palantir's substantial earnings beat was not enough to sustain the shares because investors focused on softer US commercial performance and questioned whether its exceptional growth rate can persist. This indicates a growing concern about the sustainability of its growth trajectory amidst changing market dynamics.

Palantir (PLTR) may be in the pole position of the current speculative mania, but the manager expresses significant concerns about its valuation. With an enterprise value of $400B and expected free cash flow of only $2B in 2025, the math suggests that investors would not see a return on their capital for at least 15 years, and factoring in a discount rate extends this to 23 years. The manager highlights that even a long-term investor would need FCF to grow 16% annually to justify the current valuation, which seems highly optimistic given the historical performance of similar companies. This raises red flags about the sustainability of Palantir's growth and its current market price.

Palantir is well-positioned to benefit from the ongoing AI revolution due to its proprietary technology and control over customer data. The manager emphasizes that companies that own their AI capabilities, such as Palantir, will create new competitive advantages. The market often underestimates the persistence of momentum in high-growth businesses, and Palantir's strong pricing power and high-margin profile allow it to reinvest in innovation, enhancing customer efficiency and ensuring long-term growth. This positions Palantir as a potential monopoly in its niche, making it an attractive investment opportunity.

Our biggest winner thus far has been Palantir (NASDAQ: PLTR). PLTR provides software for data integration, transformation, analytics, and workflows as a service to the largest companies and governments. Ontology is Palantir’s strongest moat, allowing customers to unify all data through its 250 connectors across various systems. This provides a single source of truth with a central operating system (OS) for their data, enabling unprecedented and powerful decision-making. Palantir’s US commercial customers have increased rapidly, growing from 12% in 4Q20 to 57% of customers in 2Q25, and now account for 31% of revenues. This has re-accelerated PLTR’s 2Q25 revenue growth to 48%, with net dollar retention rising to 128%.

Palantir Technologies demonstrated strong performance in Q3, with a notable 32% increase, reflecting its robust position in the AI-driven market. The ongoing AI boom has significantly benefited technology firms, including Palantir, as hyperscalers' massive capital expenditure plans contribute to substantial gains. The manager views Palantir as a key player in this sector, leveraging its capabilities to capitalize on the growing demand for AI solutions, which is expected to continue driving its growth.

Palantir is a great company and wonderful business, but the stock is downright dangerous. During September, the firm added $61B or 14x its projected 2025 sales in market capitalization. The current valuation, trading at more than 100x sales, raises significant concerns about the sustainability of such a price. The manager questions the wisdom of purchasing a stock at this level, highlighting the risks associated with the inflated valuation in the context of historical market behavior.