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When it comes to Palantir Technologies (PLTR), the bears have been losing the tug-of-war game in the market quite badly. So much so in fact that you’ll have to pay the fattest premium among large-cap companies if you want to have a stake in PLTR. Almost everyone can agree that artificial intelligence (AI) is driving this rally, but no one knows how long it can last.
Palantir stock is up 62% in the year to date. Analysts expect earnings to grow 287.5% this fiscal year and then slow down to 6.45% in the next fiscal year.
As such, PLTR has reached a forward price-earnings ratio of 216 times. Is the premium worth paying for the growth you’re getting? The market certainly thinks so, but some analysts are even more bullish and think that Palantir is far from its peak potential.
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BofA Analysts Bullish on Palantir’s Alignment With DOGE’s Mission
Analysts at Bank of America slapped PLTR with the highest price target yet at $125. Analyst Mariana Perez Mora said “The company sees the world ripe for an AI and technology revolution. We see PLTR enabling and leading this revolution in both Commercial and Defense markets.” BofA’s price target points to less than 2% upside potential here after the stock’s latest rally.
CEO Alex Karp called the Department of Government Efficiency (DOGE) a “revolution” that will expose inefficiencies and create opportunities for Palantir’s AI platforms. In general, he seems very upbeat about DOGE, and that’s for good reason. CTO Shyam Sankar noted during the company’s fourth-quarter earnings call that DOGE will expose “sacred cows of the deep state.” He believes Palantir can provide effective solutions to government customers at a fraction of the cost.
Essentially, analysts and the company’s management both think that the fat DOGE will be trimming will create gaps that can be exploited by Palantir. President Donald Trump and DOGE head Elon Musk are both on board with advancing AI technology, so that is an added plus here.
What Other Analysts Think
Analysts are far from having a consensus on PLTR stock. Their price targets range from the aforementioned $125 down to $18. People aren’t used to seeing such valuations since the dot-com era, so it’s understandable why some analysts think the real fat is in PTLR’s valuations.
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The mean price target of $81.82 points to 31% downside risk from here. That said, you should keep in mind that most of these price targets have been trounced by PLTR as the company has continuously proven bears wrong, and even bulls have been surprised with the margins with which Palantir is beating analyst expectations quarter after quarter.
Whether or not this stellar execution will last for the long run is hard to say. In my opinion, PLTR’s fate in the near term is highly dependent on the fate of the broader AI rally. The longer investors keep piling into AI and tech stocks, the longer the PLTR rally will likely persist.
Even then, PLTR’s valuations are among the highest in the entire sector. Its price-earnings ratio is more expensive than 98% of software companies, and its price-sales ratio is more expensive than 98.4%. Among the big caps, PLTR is likely the most expensive stock you can buy.
Should You Buy PLTR Because of DOGE?
The notion that DOGE will help PLTR is clear, and the bull case could see Palantir land several more big contracts to replace the federal agencies and projects being cleared out by DOGE.
If these contracts materialize and investors hold the premium they are paying now, this should translate into solid gains for Palantir stock in the coming quarters. Add better-than-expected commercial performance on top of that, and you have a dream scenario for PLTR stock.
Still, the primary concern would be the valuation here. A broader tech market correction would likely hit PLTR hard, regardless of any positive news related to DOGE contracts. I see no reason as to why investors will pay such multiples once the pendulum swings the other way. But until that happens, chasing the frenzy with the speculative portion of your portfolio is not a bad idea.