Palantir Q1 23 & Lucid Q1 23 – Moody market.

Palantir and Lucid together demonstrate the mood of the market.

Palantir Q1 2023 – Generative AI use case.

• Palantir reported an excellent set of results reinforcing the view that it has no real competition and that it is in a good position to help governments and companies use generative AI in their activities.
• Q1 2023 revenues / EPS were $525m / $0.05 ahead of estimates of $506m / $0.04.
• This was mostly driven by a reacceleration of revenue from companies as opposed to governments which in turn is a result of the huge interest in generative AI systems.
• This allowed the company to increase its guidance for 2023 for both revenues and operating profit.
• The company also said that it would continue to generate cash and would be profitable on a GAAP basis at the net income level.
• This allowed the shares to rally 21% in after-hours trading.
• Palantir’s timing is excellent as its new AIP platform allows clients to use generative AI on their data while minimising the downside from an accuracy and security perspective.
• This is what lies behind the sudden jump in corporate demand which I think is going to continue for at least the rest of the year.
• The only real weak spot is international which is growing by 10% YoY and where Palantir said it was going to invest less in order to ensure the company’s profitability.
• This means that non-US business is going to be slow, but if the new AIP is as good as Alex Karp says it is, then I suspect that international will come to the company through word of mouth.
• This could really kick start growth and deliver much better numbers than either I or the market are currently looking for.
• The other negative point is the stock dilution which is just brutal with another 200m shares added in the last 12 months representing further dilution of 10% for existing holders.
• If I take all of this into account, I can reach a valuation on a DCF basis of $13.5 per share for Palantir having raised my estimates somewhat following these results.
• I have owned Palantir since January of this year and remain more than happy to sit tight.

Lucid Q1 2023 – Calling Riyadh.

• Lucid Motors reported weak results and reduced its guidance in a sign that even the best are having a tough time and I suspect that the company will soon have to phone Riyadh for more money.
• Q1 2023 revenues / EPS were $149.4m / LOSS$0.43 missing estimates by a colossal $62.1m and $0.07. (Consensus was $212m / LOSS$0.36).
• The company had already effectively warned on Q1 2023 a few weeks ago when it revealed that it had produced fewer vehicles than expected but there was worse to come.
• The company has taken down its expectations for production in 2023 from 14,000 in 2023 to just 10,000.
• This will worsen the negative cash flow meaning that sometime around the end of Q1 2024, the company will need to raise more money.
• The first port of call will be Saudi Arabia’s Public Investment Fund (PIF) which already owns 60% of Lucid Motors and will have very little choice other than to back the company.
• Failure to do so would in all likelihood trigger a run on the shares held by others which is something that Saudi Arabia has already experienced this year with Credit Suisse.
• Hence, I am not concerned that Lucid will fail to raise money as I suspect that the worst-case scenario is that PIF bids for the whole company and takes it private.
• This is something I would absolutely consider doing as Lucid is one of the few EV companies that actually has some valuable IP as it is the supplier of drivetrains to Formula E.
• It has used this IP to great effect in its production of EVs and if there was one company that was to give Tesla a real run for its money, it is this one.
• However, it went public far too early and is now paying the price as even at $7 the company still has an EV of $9bn which is very chunky for a company that burns $800m per quarter and will soon run out of money.
• This is one to watch but I remain very far from pulling the trigger on it even down here.