Palantir & Lucid – Knife edge

Palantir Q2 23 – Valuation knife edge.

• Palantir met its numbers but a misunderstanding around revenue guidance for 2023 caused the shares to collapse by 12% before recovering in an indication just how high the valuation of the company has become.
• Q2 2023 revenues / EPS were $533m / $0.01 broadly in line with expectations but crucially the company generated $90m in cash from operations.
• Guidance for the full year caused confusion with the company stating that it now expected revenues in excess of $2.212bn for the full year which was perceived as a disappointment despite the fact that the mid-point of its previous guidance was exactly this number.
• The fact that this tiny misunderstanding can cause such volatility in the shares demonstrates just how skittish the market has become to any negative news on the company.
• However, on operating profit, Palantir has increased guidance where it expects $576m in adjusted operating profit which is ahead of expectations of $530m.
• The story on Palantir remains unchanged in that it is operating virtually unopposed in its market and luckily, it recently released a product which is ideal for using large language models in a controlled environment.
• This puts the company in an excellent position to ride the LLM craze but at some point, valuation is going to matter.
• The price action after-hours last night demonstrates that the stock is already overvalued at $18 per share but as long as the narrative holds, the shares are likely to continue rising.
• I bought Palantir at $6 earlier this year as the long-term valuation was pointing to $13 per share which is where it still roughly is.
• I cut my position in half at $15 on valuation grounds but did not sell it all as I think the hype cycle has some distance to carry the shares yet.

Lucid Q2 23 – Shareholder knife edge.

• Lucid reported weak results but the fact that it kept its production target unchanged kept the shares from falling again but I still think that the support of its majority shareholder remains a crucial factor in the outlook for the share price.
• Q2 2023 revenues / EPS of $151m / LOSS$0.40 well below estimates of $182m / LOSS$0.34 but the company stuck to its production target of 10,000 vehicles this year.
• Worryingly the company sold 2,810 vehicles during H1 2023 even though it produced 4,487 which is not a good look for a company that is supposed to have more demand than it can handle.
• Although the company burned through $900m in the quarter, its majority shareholder PIF (Saudi Arabia’s sovereign wealth fund) is very supportive and put in another $1.8bn into the company giving Lucid runway to 2025.
• Lucid remains one of my favourite EV companies because it has technology that allows it to produce superior products and I think that in the long run, this company will survive and maybe even thrive.
• However, the shares are trading on 2023 and 2024 EV/Revenues of 7x and 3x respectively with no sign of a profit any time soon.
• Hence, the only thing holding up the valuation is the support of Saudia Arabia which can change without warning as Credit Suisse found out to its great cost.
• Hence, I have no inclination to go anywhere near the shares as too much can still go wrong despite its technological excellence.