Palantir (NASDAQ:PLTR) stock has certainly enjoyed a meteoric rise over the past 3 years (up 1575%), leading some to wonder: could it become as big as Microsoft one day?
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This surge in valuation isn’t just hype for hype’s sake – it’s been fueled by steadily rising revenues, robust margins, and an expanding roster of high-profile clients in both government and commercial sectors. In other words, there are real business achievements behind the headlines.
Even so, the debate rages on as to whether this success actually justifies Palantir’s soaring share price. By almost any metric, the stock trades at valuations far beyond its sector peers – sometimes by thousands of percent – raising questions about just how much optimism is already priced in.
One investor, known by the pseudonym Hunting Alpha, has weighed in on the discussion. He’s made the case that Palantir has what it takes to become the next Microsoft (“this is no pipe dream”), but despite his conviction in Palantir’s potential, he isn’t putting all his chips on the table just yet.
“I have consistently believed that Palantir can become as big as Microsoft for many months now. And recent commentary from company insiders that it is building the next AWS helps support the longer-term visionary potential for Palantir… Despite my conviction in Palantir’s ability to grow into its high valuation, the current near-peak premium valuation vs. peers leaves virtually zero margin for error,” explains the investor.
What sets Palantir apart, in Hunting Alpha’s view, is its ontology platform, which positions the company to capitalize on the explosive growth in AI. This reputation as the “go-to company” for organizations seeking to harness their data and implement AI-driven solutions is a major asset.
Still, with fewer than 1,000 customers, there’s plenty of runway ahead. Hunting Alpha also observes that “flat” average revenue per customer is likely masking increased spending from existing clients, signaling deeper relationships and growing usage.
And yet, there’s a catch. Hunting Alpha reminds investors that PLTR’s One-Year Forward Price-to-Earnings ratio of 252x is the highest among its software and technology peers. This suggests that the path forward could get rocky.
Though execution has been “flawless so far,” Hunting Alpha concludes that caution is the better part of valor when it comes to PLTR.
“I believe it is prudent to dial down my view on the stock,” sums up Hunting Alpha, who is assigning PLTR a Hold (i.e. Neutral) rating. (To watch Hunting Alpha’s track record, click here)
That’s the prevailing view on Wall Street as well. With 9 Holds, 3 Buys, and 4 Sells, PLTR earns a consensus Hold rating. And with an average price target of $106.71, analysts see ~28% downside from current levels. (See PLTR stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.