Palantir: Our success lies in building AI products that meet real needs (2Q24 minutes)

The following is the summary of the second quarter financial report conference call for $Palantir Tech(PLTR.US) in 2024. For financial report analysis, please refer to "Palantir: Raising Guidance, Powering the Growth Story of AI" here 》

I. Review of Core Financial Information:

II. Detailed Content of the Financial Report Conference Call

2.1. Key Points from Executive Statements:

1) Operational Highlights:

① Market Opportunities and Positioning:

• Market Opportunities: Revenue expectations for the global AI ecosystem infrastructure construction have increased from $200 billion annually to $600 billion within 9 months.
• Leap from Prototype to Production: The company focuses on helping customers transition from AI prototypes to production, addressing the significant challenges from prototype to production.

② Significant Transactions and Customer Expansion:

• Large Transactions: Signed 27 transactions worth $10 million or more last quarter, totaling nearly $1 billion in contract value.
• Expansion of Existing Customers: Existing customers signed multiple expansion agreements, many of which are a direct result of AIP. U.S. commercial revenue (excluding strategic commercial contracts) increased by 70% year-on-year, Annual Contract Value (ACV) increased by 44% year-on-year, and increased by 19% quarter-on-quarter.
• Growth in New Customers: The number of U.S. commercial customers increased by 83% year-on-year.

③ U.S. Government Business: Growth of over 8% quarter-on-quarter for two consecutive quarters. Secured production contracts from the Department of Defense Chief Data and Artificial Intelligence Office (CDAO), with an initial order of $153 million, expandable to $480 million over the next five years. The Maven contract from CDAO will allow us to expand capabilities to Department of Defense enterprises.

④ Developer Community: Held two Champion Road events, bringing together experienced customer developers to share the latest roadmap and new opportunities. Provided a free developer tier, including rapid start libraries, tutorials, and reference implementations.

⑤ Warp Speed Product Launch: Warp Speed, based on AIP, Industrial AI, and Ontology, is a modern American manufacturing operating system designed to drive the reindustrialization of America.

2) Financial Highlights:

① Financial Guidance:

② Equity-related:

Stock Repurchase: Approximately 1.2 million shares have been repurchased, with the remaining original authorization at $973 million.

2.2 Analyst Q&A

Q: How does Palantir differ from other AI competitors? How does the company plan to maintain competitiveness?

A: The market value and bottleneck lie in the transition from prototyping to production, which is where we excel. Our advantage is based on over a decade of deep technical investment, including Ontology, OSDK, platform foundational technologies, as well as security, object-oriented capabilities, automation, and more. All of these make us unique in the process from prototype to production. The era of ChatGPT has proven that the simple product strategies of the past are no longer applicable. Similarly, AI software faces bottlenecks in transitioning from prototype to production. While creating AI prototypes is relatively easy, truly deploying them into production is very challenging, with difficulty levels possibly 10 to 100 times that of traditional software.

This is where our market opportunity lies. As demonstrated by the expansion of Panasonic Energy and Tampa General, this is also reflected in the performance numbers for this quarter.

Q: We understand why Foundry has become the new operating system for enterprises, how will the emergence of LLMs affect this change?

A: The market does not need singular solutions, although they are somewhat dependent on them. Our customers cannot solve business problems solely with massive-scale infrastructure without a systematic approach. They need a system to integrate their physical operations, technology, AI, and Large Language Models (LLMs) interactions, much like an operating system integrates hardware and applications. Palantir's OSDK, based on Ontology, provides an application development framework for enterprises, allowing them to handle business like they handle code, leveraging our built foundational technologies.

Our customers have realized the need for such a system, with their understanding far surpassing that of investors. We are not only ahead of our customers but also have a strong distribution network. Typically, revolutions are sparked by small companies, but this revolution is because we are ahead of our customers, who are ahead of market expectations. We are leveraging this leading edge to create value Regarding how to integrate Ontology, SDK with enterprises, and how to effectively use large-scale language models in the corporate environment, these are unknown areas in the market. However, our clients, whether government or enterprises, have already demonstrated the value of these technologies through practical use and digital proof. They understand that no other solution can provide such value and are increasingly unwilling to pay for things that are not used or unnecessary.

Q: Does the team feel that the conversion from Bootcamps to transactions is accelerating? Can you provide some specific details?

A: This quarter, we completed 27 large deals worth over $1 billion. Bootcamps played an important role in this process, allowing customers to see new opportunities. Shyam emphasized the challenges of deploying enterprise AI software at scale, and we are focusing on deep collaboration with customers to achieve productionization. This is a huge opportunity we are facing and the direction we are fully committed to. Customers are amazed by the impact we bring, and the demand is continuously increasing, which is also the area we are focusing on.

Looking at your question from a different perspective, in the American business field, we see a close learning cycle: what works, what doesn't work, and why. This contrasts sharply with places where things don't work. Many American companies are very strong and flexible. Like those watching this conference call, they realize that this is effective. Some leaders predicted this, but most customers want to see its actual effects in production and then understand why it is effective.

Now, more and more people want to know why it is effective and how to expand it. Why do other methods not work? This understanding is changing the dynamics of our business, which will lead to our company being viewed in a different way in all areas, including the financial sector. Innovators were skeptical, but now they see the results and know it is feasible. Our competitors, the US military, and on-site personnel all know it is effective, and the same goes for American business. This has driven a staggering 70% growth rate, with people seeking to expand and understand how it works, while we are also seeking to enhance the effects through innovation.

Q: What is Warp Speed? Is it a new system that allows enterprises to build their own ERP systems? Or is it a solution that runs on Palantir's existing traditional ERP system? Or has Palantir created a solution similar to ERP? Please provide some details. For old-school major contractors in the US, accepting your help, reindustrializing, restoring production, and getting back on track with their multi-billion dollar contracts, what is the biggest obstacle?

A: Warp Speed is an operating system designed for modern American manufacturers, which includes not only ERP but also involves MES, PLM, PLC, etc., interacting directly with factory floors. We have the opportunity to rethink this area. Most traditional software was designed for CFOs in the 1970s, whereas today we design for production supervisors, focusing on production itself.

For large traditional manufacturers, this idea may sound crazy because they have already invested a lot in old systems. But for emerging manufacturers, those enterprises that are driving the country's reindustrialization, they understand the shortcomings of existing software strategies They, like Tesla and SpaceX, are building their own systems from scratch because existing solutions simply do not fit. These emerging manufacturers know they cannot afford the cost or time of building systems from scratch, which highlights the role of Warp Speed. Applications built using AIP and OSDK can adapt to business needs, after all, an ERP system for making rockets cannot be used for making tennis rackets.

The challenge we face today is that software licensing costs $1, but implementation costs as much as $9, and often with poor results. These systems quickly collapsed during the COVID-19 supply chain disruptions. Now, we have the opportunity to reinvent everything, and the energy around national defense and reindustrialization is driving this opportunity. This applies not only to the United States, but every allied nation faces issues with military production. It is actually about what we are building and why it might work, these two are closely related. The reason it might work is because every Western leader is privately considering how to make manufacturing work, thus being competitive on the battlefield.

The right way to manufacture is not about quick listings and building false things, but about building something real, sustainable, and product-centric. This aligns perfectly with Palantir's winning and building approach, which is also a key focus of our efforts.

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