Palantir (NYSE:PLTR) has rewarded its investors handsomely in 2024, standing out as a clear AI winner. Earlier this week, the company provided further evidence of its success by delivering a strong Q3 report and raising its outlook for the year.
The big data specialist beat expectations on all the important metrics and investors showed their satisfaction by sending the shares up by 34% over the past two trading sessions. That brought the stock’s year-to-date gains to an improbable 223%.
Management also remains extremely confident in Palantir’s positioning, with the company saying it “absolutely eviscerated” in Q3, pointing to robust AI adoption in the U.S. as a key factor. Palantir also highlighted the success of AIP bootcamps, which are accelerating the company’s land-and-expand strategy and significantly shortening sales cycles.
Mizuho’s Gregg Moskowitz, an analyst who ranks in the top 3% of Wall Street stock pros, applauded a “very good” quarter for Palantir. “Given its positioning and strong YTD execution,” the 5-star analyst went on to say, “there’s no denying that PLTR is deserving of a premium valuation.”
But how much of a premium valuation exactly? The stock’s ascent has sent the valuation to a “very large” more than 3x premium vs. other enterprise software names under the Mizuho analyst’s coverage. “Valuation cannot and should not be irrelevant,” Moskowitz went on to say, “and we find it increasingly difficult to justify PLTR’s high multiple that in our view already discounts significant acceleration versus consensus expectations.”
As such, Moskowitz maintained an Underperform (i.e., Sell) rating on the shares and even though he raised the price target to $37 from $30, that figure sits 46% below the current share price. (To watch Moskowitz’ track record, click here)
Monness’ Brian White, another of the Street’s top analysts and who ranks amongst the top 1%, is even more scathing regarding the valuation. “Palantir’s enterprise-value-to-revenue multiple of 26x dwarfs the 6.1x average for our software group, while making claim to the richest valuation in our universe,” he said. “Moreover, the stock trades at a 39% EV/revenue premium to NVIDIA, despite Palantir’s lower revenue growth rate and operating margin profile.”
The 5-star analyst also remains unconvinced by CEO Alex Karp’s confident tone, saying the earnings call was “drenched in another round of AI propaganda.” And while White says that as with other software companies, Palantir has long been innovating with predictive AI, he makes the case that this latest AI hype cycle has been fueled primarily by generative AI, and Palantir’s “revenue exposure” in this segment remains uncertain.
“In the end,” White summed up, “we believe this opacity has prompted the market to conflate the different flavors of AI and award Palantir a dreamy valuation in the process.”
Accordingly, White kept a Sell rating on PLTR shares while his $18 price target factors in a huge drop of 68% from current levels. (To watch White’s track record, click here)
Overall, the Street’s ratings split into 4 Buys, 7 Holds and 5 Sells, all culminating in a Hold consensus rating. However, that rating might as well be a Sell, given the $29 average target suggests the shares will fall by 48% over the coming months. (See Palantir 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.
