Date: 03/2/2021
Author: Mr. X
Yesterday, FBI Director Christopher Wray testified on Capitol Hill about the rising danger of domestic terrorism. He said that “racially and ethnically motivated violent extremism” would be raised to the highest threat category, on par with ISIS.
Many fear that the surveillance state which has been directed against fighting foreign adversaries will now be directed against Americans. To some extent, it already has been, which is why the Patriot Act was so controversial in the past. However, the Capitol Riot has made it hard to oppose the domestic use of anti-terrorism measures and has certainly reduced media critiques of such practices. There was a time when Edward Snowden and Julian Assange were seen as progressive heroes. That time has long passed.
Whatever we may think about it, there is a rough political consensus that the federal government will need to be analyzing Big Data more energetically in order to combat extremism. Similar measures are also needed to fight a pandemic. Regulating border entry, keeping up with contact tracing, tracking groups that have been exposed to a virus, and other vital tasks all require massive amounts of data crunching.
Administering large-scale health care services also require massive computing capabilities and data tracking. I regard a universal health program in America as inevitable, even if not desirable. This will require administrative capabilities the federal government does not currently possess and a massive amount of work that will be contracted out.
Finally, there is the question of foreign defense. The National Security Commission on AI recently said that China could replace the United States as the world’s “AI Superpower.” The American government may get an unfair reputation when it comes to inefficiency and waste. I don’t think the Chinese government is an unstoppable juggernaut – the levels of corruption within certain areas of China rival what you see in certain regions of Italy.
All that said, the Chinese have massive resources and the ability to dedicate them to singular goals. An arguably more divided America does not. America has the edge (for now) when it comes to innovation and risk-taking, but such traits are generally not found or encouraged within the public sector. They are still in the private sector.
What is needed is a private administration of public resources that is kept efficient by competition. In fact, we’ve just seen an example of this. Though journalists often slammed the Trump Administration’s response to COVID-19, it’s simply a fact that Operation Warp Speed produced multiple vaccine candidates in what a year ago would have seemed like a miraculously short amount of time. It’s also not true that Joe Biden started from nothing. The simple fact that he can speak of the inoculation of all American adults by the end of May shows that much was accomplished before the Democratic victory.
One company stands at the intersection of all these challenges, with the leadership and record to match them. That company is Palantir [PLTR]. Palantir has brought in extraordinary returns since its Initial Public Offering, about 150 percent, even after a recent selloff. There are several major reasons why.
First, Palantir already has a record in counter-insurgency and partnership with the U.S. government. Its reported previous work in counter-terrorism can be leveraged into monitoring the home front for extremists of all political persuasions. Calls for government austerity will simply go unheeded because the perceived threat of “political extremists” is part of the Democratic justification for more spending and government programs. Republicans will counter the Democrats by charging that Joe Biden is “soft” on China. Both parties have an interest in driving more spending that can be directed Palantir’s way.
Second, Palantir is moving into the private sector. Its Foundry project has received good reviews from the private sector, as well as lucrative contracts. For example, N95 mask manufacturer 3M is expanding its use of the platform in order to keep up with supply demands. IBM also recently announced collaboration with Palantir as part of its cloud data offerings.
Third, the COVID-19 pandemic is providing a more “peaceful” justification for Palantir’s partnerships with the state. Palantir recently was awarded a contract from the United Kingdom’s National Health Service. While that deal has drawn political criticism, it’s doubtful that it will be revoked. The United States federal government has also turned to Palantir in order to help track the epidemic. I don’t think this funding will be revoked after things return to “normal.” Instead, the programs that have grown up around fighting the pandemic will stay in place as governments justify more spending on power on the perceived need to fight deadly diseases.
Finally, Palantir is still drawing investment from institutional investors, notably Cathie Wood’s ARK Investment. It added 3.4 million shares late last week. To me, this compensates for some recent sells by insiders which helped drive a recent slide in the share price. We also shouldn’t forget that Palantir beat revenue expectations this year, a notable feat after a period that caught many companies flat-footed.
Palantir’s main danger is political. The company has worked with Immigration and Customs Enforcement in the past, which is controversial to some progressives. Peter Thiel, one of the founders, spoke at the 2016 Republican convention. There are also more basic questions about whether a company can thrive if it is dependent on government spending that can easily be revoked.
However, I think one key issue overwhelms all of this – the American competition with China. Economically and ideologically, China and America are now in an almost open Cold War. Much like the original Cold War, this is less a test of military might than a test of political effectiveness. Whose system works better? As President Joe Biden recently declared, America must prove that its democratic system is not a relic of history.
We take for granted that capitalism would outproduce Soviet command economics and prove Marx wrong. Yet China’s economic growth and apparent success in handling COVID-19 has raised questions about the “End of History” which presumed liberal democracy was the final political stage for all societies. Instead, China is showing that a relatively closed political system may be able to outperform liberal democracies in delivering material wealth. America’s cultural and political divisions aren’t helping its case, President Biden’s jubilant declarations that America is “back” notwithstanding.
The federal government can’t meet these challenges on its own. Palantir has a creative team that has rejected so much of the groupthink that defines today’s Silicon Valley. Perhaps more importantly, it also has taken the Chinese threat seriously. It will not face the same problems in “decoupling” from China that someone like Apple [AAPL] will.
For that reason, I think Palantir will become a pillar of both the political and economic power structure in the West. It delivers what governments and major conglomerate can’t create on their own – namely, an efficient way of gathering and using the vast amounts of information gathered.
If you bought Palantir at the IPO (as Rogue Investing Daily did in its Model Portfolio), you’ve gained quite a bit. Is it still worth buying now?
Short-term, buying is not without risk. We may see some additional pullback, especially if there is increased political opposition to the company. At this level, one contract gained or lost can generate an entire buying craze or major selloff, especially because of the company’s popularity with retail traders.
However, Republican taunts notwithstanding, the Biden Administration is moving to separate from China when it comes to control of strategic goods, especially those required for semiconductor manufacture. Managing such a huge effort will require specialized skills that Palantir is in a good position to provide.
Long term, Palantir’s best days are ahead of it. At least, we better hope they are if we want America’s best days ahead of it too. PLTR is America’s best shot at winning the economic and technological (and thus political and military) battles of the future.
