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Shares of data analytics company Palantir (PLTR) are starting to sag after a remarkable surge that began back in May. Back then, the secretive tech company not only clocked a small quarterly earnings beat (earnings per share of $0.05, just a penny higher than estimates), but it also had the opportunity to flex its AI muscles. Indeed, it was unreal how much investors rewarded AI prowess in the year's first half.
Nowadays, the script has been flipped, and some of the biggest AI stock winners are under a considerable amount of pressure. After its latest quarterly report on Wednesday, PLTR fell 11% for its worst session since last November, and now risks giving back a great deal of its gains from the spring and summer.
Under the leadership of CEO Alex Karp, I would keep a close watch on PLTR stock amid its latest post-earnings flop. Part of the selling is due to the underwhelming second quarter. Still, we can't rule out a valuation reset here, as the broader basket of high-multiple tech companies all seem to be heading lower since August began.
That said, though Palantir remains a difficult to stock to value, the longer-term AI upside could be considerable.
Valuation Reset: Palantir's Post-Earnings Volatility May Not Be Over Yet
Now, Palantir didn't report a devastating second quarter by any stretch of the imagination. The numbers were actually quite good, albeit nothing incredible enough to justify a continued run in the stock.
Earnings per share of $0.05 were right in line with expectations, while revenue of $533 million came in a tad muted - perhaps too muted for investors who bid up the stock since May.
Palantir's management team was confident enough to increase its guidance. A new $1 billion share repurchase announcement also suggests leadership thought the stock was attractively priced - though after a more than 160% run since the lows of May, Palantir stock seemed anything but cheap. Further, 12% revenue growth isn't indicative of a stock entering its prime. Personally, I think the Palantir story will take another several years to play out.
After a bruising sell-off in Wednesday's downbeat market session, PLTR is recovering from the worst of its post-earnings losses, up more than 2% at last check. Nevertheless, it seems like the former meme stock may have an upcoming date with the single digits again, as investors seem to be souring on growth and tech once again. And Palantir is just one of the firms that got caught up in the downdraft.
Palantir Stock: 18x Sales is a High Price to Pay for Modest Revenue Growth
Though timing a bottom in the name is a risky game, I do think it'll be tough to hang onto a price-to-sales (P/S) multiple north of 18 times unless Palantir's revenue growth can smash past its current 12% guidance. In any case, Palantir stands out as a company that can live up to AI expectations in the next three years or so. AI's monetization potential isn't fully understood quite yet. As such, there may be a good chance that AI could help Palantir overshoot at some point down the line.
In the meantime, I view Palantir's AI Platform (AIP) as getting a foot in many doors that could help the firm jolt its growth in the future. Of course, it's difficult to gauge just how much demand will build for such an innovative offering in this early stage of the AI boom. Could it overshoot even the most optimistic of estimates? It's definitely possible. Just look at this year's action in Nvidia (NVDA) stock!
Wedbush Securities analyst Dan Ives seems to view Palantir as an “AI pure play," and perhaps even the “Messi” of the batch. I think there's a good chance Mr. Ives is proven right, but it will take some time as Palantir continues its expansion into the commercial segment.
For now, I'd wait for shares of Palantir to come in further. Any stock that more than doubles in a few months can get cut in half just as quickly!
The Bottom Line on Palantir Stock
Despite today's bounce, Palantir stock is a falling knife that may not be wise to catch until the dust has had a chance to settle a bit. Sure, the company's growth is underwhelming, but look for Palantir's AIP to really come into play at some point down the road.
On the date of publication, Joey Frenette did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
