Artificial intelligence (AI) stocks were one of the market's breakout themes in 2023, and some of last year's AI standouts are still basking in the spotlight as Wall Street's top stock picks for 2024. However, there's one AI software stock in particular that analysts aren't exactly showering with bullish attention, even in light of its steep pullback from last year's highs.
So, is now a good time to buy this tech stock on the dip - or should investors take a cue from Wall Street, and stay on the sidelines for now? Here's a closer look.
Palantir Stock Gives Up Post-Earnings Gains
Palantir Technologies (PLTR) makes human-driven products for real-world data analysis. They offer analytical software-based products which focus on using data as a means to better the effectiveness of their client’s organizations. Palantir serves both commercial companies and government organizations, and offers its software via four platforms: AIP for private networks, Foundry for modern enterprise, Gotham for global decision-making, and Apollo for continuous delivery.
Palantir’s expertise in AI-based data analysis has been a huge driver of growth in this market, generating demand for the company's software from big corporations as well as government agencies. Although it only has a few hundred clients at the moment, it deals with large, complex contracts, earning millions on each.
Palantir stock rocketed last year, gaining 167% to outperform the broader equities market.
That's partly because Palantir’s recent Q3 earnings report beat estimates. It reported adjusted EPS of $0.07 per share against expectations of $0.06, and a 17% rise in revenue to $558 million. The top-line beat was driven by solid 23% growth in smaller segments, combined with a stable 12% growth in its primary government business. Palantir also noted a 34% increase in customer count.
The AI software specialist also raised its full-year guidance for adjusted operating income and revenue. Palantir stock gapped higher after earnings, adding 20.4% in a single session.
Will PLTR Join the S&P 500 Index?
Notably, Palantir reported its fourth straight quarter of positive GAAP net income, which means the company is now eligible to be included in the prestigious S&P 500. While PLTR is already more valuable than the majority of SPX components by market cap, it has yet to be officially added to the benchmark index - though many expect this to be made formal sometime in 2024.
Inclusion into the S&P 500 typically results in a boost of buying activity for companies, primarily because index funds need to add the new shares into benchmark tracking funds. Back in December when Uber (UBER) was added to the S&P 500, the shares gained about 6% on the news, while Airbnb (ABNB) rallied more than 7% in September. News of Palantir joining the S&P 500 would most likely result in a similar boost for the stock on a short-term basis.
What Do Analysts Expect for PLTR?
Following the earnings-related rally, PLTR took a turn for the worse, as analysts began to flag concerns over its contracts with various government agencies - including the UK's NHS and the U.S. Army. From its Nov. 20 high close at $21.34, the stock has now dropped 21.5%.
At 16x forward sales, PLTR trades at a significant premium to many of its sector peers - suggesting the shares still aren't attractively valued, despite the recent pullback.
And some experts think the stock could go even lower from here. The mean price target is $14.27, reflecting an expected downside of about 14.9% from current levels.
Overall, analysts have a consensus “Hold” rating for PLTR. Out of the 14 analysts covering the stock, 2 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, 4 have a “Hold” rating, 2 analysts have a “Moderate Sell” rating, and 5 analysts have a “Strong Sell” rating.
