Another quarter, another solid performance for Palantir (NASDAQ: PLTR). The big data analytics firm has made quite an impression, reporting record revenue and expanding profits, with its Rule of 40 score climbing to a notable 114. Honestly, on the surface, there isn’t much to criticize.
Yet, despite these strong results, Palantir’s stock has dropped 14% since the earnings announcement. So, what’s going on?
First off, there’s been a slight cooling in sentiment towards the broader AI sector. Discussions around an AI bubble have prompted some investors to take profits across tech, contributing to the skepticism. Notably, short-seller Michael Barry has made his short position against Palantir public, adding to concerns.
But the most persistent issue might be valuation. Even the most dedicated fans of the company are admitting that PLTR isn’t exactly cheap. Investor Daniel Jones points out that he remains unconvinced the current stock price is warranted.
“Even with its operational efficiency and swift growth in both the commercial and government sectors, PLTR is still significantly overvalued, trading at high multiples even in favorable scenarios,” Jones says.
There’s a consensus that Palantir as a company is doing remarkably well, and Jones aligns with that view. He noted an impressive 63% year-over-year revenue growth and a significant increase in commercial customers—from 498 to 742 in just a year. Plus, there’s improved guidance for full-year revenue and adjusted operating profit.
However, despite the encouraging news, Jones has reservations. He points to the potential for an AI bubble, highlighting that the billions being spent seem to be concentrated among just a few companies.
“The stock is incredibly pricey, so any sustained downturn in the AI sector could severely impact its price,” he warns.
Jones has calculated that, even under the most positive outlook through 2028, PLTR’s price to operating cash flow and EV to EBITDA multiples would be at 45.7x and 41.3x, respectively. While these figures could be “more reasonable” than current levels, he admits that predicting this far out is tricky.
“Palantir Technologies might keep growing, but its stock is considerably overpriced, suggesting it could collapse at some point,” Jones summarizes.
Unsurprisingly, he maintains a “strong sell” rating on PLTR.
Meanwhile, Wall Street has taken a more cautious approach. Among 16 analysts tracked by TipRanks, only 3 recommend buying, 11 suggest holding, and 2 advise selling. The average price target for the stock is set at $18.87 over the next year, representing about a 6% increase from the current price.
