The Q3 earnings season reached its peak last week, with 170 of the S&P 500-listed companies reporting. The pace is slowing this week, as only 102 companies are set to release results – but investors are feeling upbeat. Of the S&P companies that have reported so far, 75% reported earnings results that were better than had been expected.
Kicking off November, two intriguing tech stocks, Palantir (NASDAQ:PLTR) and NXP Semiconductors (NASDAQ:NXPI), are set to release their latest quarterly results after today’s market close.
Analysts are weighing in ahead of these reports, showing a clear preference for one of these names as the top buy before earnings are unveiled. Let’s take a closer look.
Palantir
We’ll start with Palantir Technologies, one of Peter Thiel’s high-tech babies. The company was founded in 2003, and has built itself up as a leader in innovative data technologies. Palantir puts a combination of human intuition and AI tech to work in the field of data analysis, developing stronger results than either humans or AI can generate on their own.
Palantir offers its customers a wide range of data products and services, based on the company’s flagship AIP software, the AI Platform. The products are designed to use AI as a supplement to human expertise in data analysis, and have seen a strong qualitative benefit in recent years from the advent of more advanced AI tech, especially generative AI and natural language processing.
Palantir has found solid successes in a range of sectors, including both commercial and governmental firms and agencies. The company’s products are used in data protection, financial services, anti-money laundering, fraud protection, government services, and healthcare services – to name just a few of the areas where Palantir has a foothold.
Just this past September, Palantir entered into an agreement with Nebraska Medicine, the academic health system based in Omaha, for a multi-year and multi-million-dollar contract. And, later in the month, Palantir signed a similarly long-term, high-value contract extension with the oil and gas company APA Corporation.
On the financial side, Palantir saw $678 million in revenues during Q2 of this year, for year-over-year growth of 27% and beating the forecast by $25 million. The company’s bottom line came to 9 cents per share in non-GAAP figures, a penny over the estimates. Looking ahead to Q3, the analysts expect to see a top line of approximately $703 million and non-GAAP earnings of 9 cents per share again.
We should note here that Palantir’s stock has been climbing steeply all year, and for the year-to-date, the stock is up over 140%. The magnitude of this gain has caused some analysts to express concern that the shares have become have become overvalued.
One of those analysts is Mizuho’s Gregg Moskowitz who writes: “PLTR is seeing impressive US commercial traction and interest in its AI Platform (AIP) bootcamps, which are shortening sales cycles and showcasing PLTR’s ability cater to a wide range of enterprise use cases. However, the Commercial results are not as impressive upon second glance, and more often than not the Commercial beats have been driven by non-core strategic commercial contracts (SCCs). Additionally, results in other parts of the business, including International Commercial and Government, have been volatile. We also believe the shares are priced to reflect a significant uptick in growth, which we are not convinced of…”
Moskowitz’s unconvinced stance is visible in his Underperform (i.e. Sell) rating on PLTR shares, while his $30 price target implies a one-year downside for the stock of 28%. (To watch Moskowitz’s track record, click here)
Overall, the Street is showing caution here. The stock has a Hold consensus rating, based on 17 recent analyst reviews that include 4 Buys, 7 Holds, and 6 Sells. The shares are priced at $42 and have an average price target of $27.85, suggesting a 33% share-value decline in the coming year. (See PLTR stock forecast)
NXP Semiconductors
NXP Semiconductors, the second stock on our list today, is a Dutch, $60 billion semiconductor chip company that operates at both the design and production ends of the business. The company produces a wide range of chips and circuits, which have found use in audio systems, RF and RFID applications, autonomous vehicles, sensor technologies, wireless networking, and security and authentication systems. NXP’s product lines are designed to improve people’s daily lives, through efficient sensing, thinking, and connecting.
The company describes its approach to the chip industry in terms of both technology and people, developing cutting-edge tech and matching it to pioneering customers – a combination that creates solutions and solves problems. It’s a good approach, and has allowed NXP to grow – the company boasts a market cap of more than $60 billion, saw $13.28 billion in revenue last year, and has operations in over 30 countries around the world. Over the trailing 12-month period, the company has brought in $13.11 billion in revenues, realized $3.74 billion in cash flow from operations, and returned $2.4 billion in capital to its shareholders, through a combination of stock repurchases and dividend payments.
In its last quarterly report, which covered 2Q24, NXP showed a top line of $3.13 billion in total revenues and a bottom line of $3.20 in non-GAAP earnings per share. The revenue figure was down 5.2% from the prior-year period, although it did beat the forecast by $10 million; the EPS figure was in-line with expectations.
Looking ahead to the 3Q24 results today, expectations are calling for revenues of $3.25 billion, with a non-GAAP EPS of $3.43.
For UBS analyst Francois-Xavier Bouvignies, the key point here is NXP’s prospects for future gains. He wrote of the company in a recent note, “Through 2024, NXP has been stating that it managed channel inventory effectively through the downcycle. We have been sceptical of this in the past, however, we believe new data supports the view, with inventory levels consistently below peer-group average through 2023 and into 2024 and only mild pricing declines. This increases our confidence in their 2025 recovery.”
Bouvignies goes on to explain why this stock is likely to improve its performance, noting: “NXP has experienced a peak to trough contraction in their gross margin, through this cycle of 50bps, significantly less than the peer group average of 910bps. Improvements in operational efficiency, exiting lower margin business and solid management of channel inventory/pricing, which is visible in our new distributor tracker dataset (here), have more than offset declining utilisation rates. We believe it is likely that NXP will lift their 55-58% gross margin target at the upcoming CMD in November, which could pave the way for earnings upgrades.”
To this end, the UBS analyst puts a Buy rating here, along with a price target of $285 that points toward a one-year upside potential of ~20%. (To watch Bouvignies’ track record, click here)
So, that’s UBS’ view, let’s turn our attention now to rest of the Street: NXPI’s 4 Buys, 3 Holds and 1 Sell coalesce into a Moderate Buy rating. The shares have an average target price of $276.43, suggesting a 16% gain from the current share price of $238.34. (See NXPI stock forecast)
With the facts laid out, and the analyst comments on the table, it’s clear that the Street prefers NXPI as the superior tech stock to buy ahead of today’s earnings releases.
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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.
