Artificial intelligence (AI) stocks are still on a quest for total market domination, with industry leaders like Nvidia (NVDA) and Advanced Micro Devices (AMD) up more than 20% already in 2024. Forecasts for growth remain optimistic, with Statista forecasting a CAGR of 15.83% through 2030.
But while Palantir Technologies (PLTR) has enjoyed the same kind of breakout price action as many other AI leaders over the past year, the software-as-a-service company hasn't exactly won over Wall Street just yet. In fact, a bearish analyst note released earlier this week points to expectations for the stock to lose more than a quarter of its value over the next 12 months.
Here's a closer look at what's been driving this AI software stock, and how this latest Wall Street forecast for PLTR stacks up against the consensus.
About Palantir
Established more than two decades ago in 2003 with ex-Paypal (PYPL) founder Peter Thiel in its founding team, Palantir is a software company specializing in big data analytics and fusion platforms for government, defense, and commercial clients. Its core platform, Foundry, helps users integrate, analyze, and visualize disparate data sets, enabling them to carry out a plethora of security activities. Headquartered in Denver, Palantir has offices worldwide.
Currently commanding a market cap of $36.4 billion, Palantir stock has had a sensational rally over the past year, rising 126%.
Following this impressive rally, Palantir stock is now trading at relatively expensive valuations. The shares are priced at 67.7 times forward earnings, 16.4 times forward sales, and 10.9 times book - all well above the median readings for tech sector stocks, which suggests PLTR is overvalued.
Palantir's Latest Earnings Report
Palantir's latest results for the third quarter beat estimates, with revenues up 17% from the previous year to $558 million as commercial revenue grew by 23% to $251 million. EPS for the quarter came in at $0.07, rocketing from $0.01 in the year prior.
Palantir's earnings record over the past five quarters has been mixed, with three bottom-line beats and two misses.
Net cash from operating activities increased by 183.5% from the previous year to $411 million, and free cash flow improved to $141 million. FCF margin expanded to account for 25% of sales.
Notably, the shares are priced at 0.94x price/earnings to growth, suggesting PLTR is reasonably valued on at least one metric.
Why Are Analysts Worried About Palantir Stock?
Palantir's solid rise in customer count has been a bright spot for the company. For instance, in Q3 2023, the company's customer count rose by 34% YoY. Commercial customers now account for 45% of revenue.
Nevertheless, uncertainty over the scope of government contracts with the U.S. Army and UK's NHS have also been cited as a point of concern among bearish analysts.
Plus, CEO Alex Karp's assertion that the company does not have a monetization strategy, and instead their focus is on gaining share in the artificial intelligence (AI) market, is a cause for concern. Competition in the AI space is intense. with tech titans like Amazon (AMZN), Microsoft (MSFT) and Google (GOOGL) all vying for enterprise customers alongside Palantir.
What's the Forecast for PLTR?
In a recent note, Deutsche Bank just raised its price target on PLTR to $12 - a target that implies expected downside of more than 26% from current levels - and reiterated a “Sell” rating on the stock.
The consensus is only slightly less bearish on PLTR. Analysts have an overall rating of “Hold” for the stock, with a mean target price of $14.35. That implies expected downside of about 12% from current levels, with the low target price set at $5.00.
Out of 14 analysts covering PLTR stock, 2 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, 4 have a “Hold” rating, 2 have a “Moderate Sell” rating, and 5 have a “Strong Sell” rating.
