Palantir (NASDAQ:PLTR) has hit the jackpot thanks to its track record helping commercial and sovereign clients use AI to improve organizational efficiencies and real-time decision-making. Share prices skyrocketed by over 300% in the past 12 months, fueled by growing revenues, new clients, and the overall sentiment that this AI gravy train will keep on rolling.
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PLTR’s Q3 2024 results did little to tamper this enthusiasm. In the U.S., for instance, which represents almost 70% of the company’s business, commercial and government revenues increased by 44% year-over-year. U.S. government contracts remain PLTR’s largest source of revenues, which is perhaps not surprising given that the company was founded to support U.S. defense and intelligence agencies.
Though 2024 ended on a high note, the new year has gotten off to a bit of a rocky start. Overall market volatility, along with a recent “underweight” rating from Morgan Stanley, have contributed to declines approaching 10%.
However, a new president—who is launching a Department of Government Efficiencies (DOGE)—is about to take office. Could the Trump administration’s policy priorities add more tailwinds for PLTR?
On the contrary, explains one investor known by the pseudonym Investor Express, who believes that DOGE may very well turn out to be a “potential bogeyman” for Palantir.
“DOGE’s push for transparency and cost efficiency threatens Palantir’s government contracts, adding to risks from high costs, long sales cycles, and proprietary systems,” argues the investor.
Investor Express points out that DOGE’s mandate could prioritize open-source solutions, meaning that PLTR’s proprietary platforms might not be the best fit. In addition, the investor notes that PLTR’s solutions can be pricey, which also might not mesh with the price-cutting push of this new department.
Beyond the DOGE-related concerns, Investor Express notes that growing competition from firms such as Microsoft will likely put additional pressure on the company, whose “enormously stretched valuations” of 55x revenue and 161x free cash flow are dependent on robust growth going forward.
Expecting the company’s “trading premiums to compress in 2025,” Investor Express is rating PLTR a Sell. (To watch Investor Express’ track record, click here)
Wall Street shares Investor Express’ concerns regarding PLTR’s prospects for the coming year. With 2 Buy, 8 Hold, and 7 Sell ratings, PLTR holds a consensus Moderate Sell rating. Its 12-month average price target of $46.57 would translate into losses of over 30% in the coming year. (See PLTR stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
