Markets rise, but 1 stock stands out Tuesday after hours

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Wall Street has been on the alert for some time, with the stock market having a volatile start to the month following a substantial drop in September. Investors are taking a critical look at the situation in Washington, which currently has lawmakers at a stalemate as breaching the debt ceiling and the fate of the infrastructure bill both matter. Still, stocks managed to rebound on Tuesday despite these concerns and rising bond yields. The Dow Jones Industrial Average (DJINDICES: ^ DJI), S&P 500 (SNPINDEX: ^ GSPC), and Nasdaq Composite (NASDAQINDEX: ^ IXIC) were all up around 1%.

Index

Daily percentage change

Daily point change

Dow

+ 0.92%

+312

S&P 500

+1.05%

+45

Nasdaq

+ 1.25%

+178

Data source: Yahoo! Finance.

Many high-growth stocks in the tech space have recently taken bigger hits than the broader stock market. This is in part because of the surge in their stock prices over the past 18 months as investors grapple with whether their companies’ growth is sustainable and justifies stock valuations.

Yet when good news arrives on the fundamental business front, it warrants substantial increases. This is what is happening to the cloud data analytics company Palantir Technologies (NYSE: PLTR) Tuesday afternoon, as the stock jumped after the regular trading session’s closing bell after a promising announcement for the company.

Palantir wins contract

Palantir shares were little changed in Tuesday’s regular trading, but the share climbed 9% after the close. The move came after it was announced that the company had been selected for a promising government contract.

Palantir said the U.S. Army’s program manager for intelligence systems and analysis selected the company for the military’s Capability Drop 2 (CD-2) program. Under the terms of the selection, Palantir will provide the intelligence data fabric and analysis base for the military.

Image source: Getty Images.

The selection qualifies Palantir to move on to the next phase of the competitive $ 823 million contract, which loosely stipulates indefinite delivery and an indefinite quantity in terms of deliverables. The company said it would work with the military through iterative testing and debugging first, and then support the military’s efforts to go through final testing and deployment for use in the field.

Palantir’s Gotham platform will be the essential element in supporting military users across the world. Army personnel will be able to use Gotham’s data integration, correlation, fusion and analysis capabilities to fight and defend against emerging threats. As the military becomes more familiar with Gotham, Palantir expects intelligence personnel to migrate legacy programs under the CD-2 umbrella. Ultimately, the CD-2 could form the basis for further modernization in a wider range of operations.

A catalyst for growth?

Palantir’s platform has extensive capabilities to allow users to bring together data from multiple sources for unified analysis. Yet despite the platform’s obvious advantages in an increasingly data-driven world, investors had started to fear that Palantir would not get many new government contracts. This largely kept its stock price in a sustaining pattern even as other cloud-related stocks skyrocketed.

The big question Palantir needs to answer is whether it can attract corporate clients to its Foundry platform even as it strives to secure more government contracts using Gotham. The right balance of business could give Palantir a two-pronged advantage over its more trade-oriented rivals.

The Palantir Army contract is a step in the right direction. To reach new heights, however, the company will have to demonstrate its ability to significantly increase new business to justify rich enough valuation metrics.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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