Will Palantir Technologies’ Earnings Justify its AI Hype?

The markets will look to the quarterly earnings report later today from Palantir Technologies (PLTR) to see if the recent AI hype of the company’s products justifies the surge in its stock price.  Palantir Technologies is up more than +180% this year and is up more than +135% since its last earnings report three months ago when company CEO Karp talked up the company’s artificial intelligence (AI) products and the demand for them.  Investors jumped into Palantir, and short sellers ran for cover after CEO Karp said that new AI developments at his company are so powerful that “I’m not sure we should even sell this to some of our clients.”

Even after Palantir Technologies rallied to a 20-month high last Tuesday, the majority of analysts haven’t bought into the AI hype for the stock.  According to Bloomberg data, analysts have twice as many sell ratings on the stock than buy ratings.  Roundhill Financial said, “While we know Palantir is involved with AI, much of its technology remains unproven.  Names of this nature, meaning anything involved with AI, will have to start showing greater progress to justify the multiple.”

The recent rally in Palantir Technologies has pushed the stock’s valuation to an elevated 16 times projected sales.  While the company is well-positioned to benefit from AI and big data trends, earnings results will be paramount for the ability of the stock to maintain its current rally.  Jeffries LLC said questions also remain about the company’s pricing strategy for its AI products, which have been notably absent from previous earnings reports.

Short sellers of Palantir Technologies have begun throwing in the towel as the stock’s recent rally has left short sellers with paper losses of about $1.7 billion, according to data from S3 Partners LLC.  Short interest as a percentage of shares available to trade fell to about 7% from a high of 9% in May.  In its last earnings report in May, Palantir Technologies posted a surprise profit in Q1 and said it expects to make money for the rest of 2023, which would be the company’s first profitable year. 

Some analysts believe investing in Palantir Technologies is a good long-term AI play.  The company works with governments and corporations with sensitive networks, offering services to analyze information like criminal databases, DMV records, or phone data to deal with decision making.  Mahoney Asset Management said, “They’ve been doing this since 2004, so they’re not some company that just jumped into the growth trend,” and their government contracts “verify that they have some really great products and services.” 

On the date of publication, Rich Asplund 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.