Palantir (NYSE:PLTR), a big data analytics giant, initially built its reputation by catering to U.S. intelligence agencies. While government contracts remain a significant part of its portfolio, Palantir is now expanding its reach into the private sector, where demand for its AI-driven solutions is on the rise. These cutting-edge tools enable companies to better manage and interpret vast amounts of data, making Palantir increasingly attractive to commercial clients.
The company, which has seen its share prices rise by 116% in 2024, grew its number of commercial customers by 83% year-over-year in Q2 2024 while delivering its 7th consecutive quarter of positive profits.
Could Palantir shares be on the cusp of yet another surge in gains, as commercial customers continue to drive robust profits?
Not so fast, argues one 5-star investor, known as Wright’s Research, who contends that PLTR’s current valuation doesn’t reflect even the best-case scenario.
“We don’t see many ways Palantir, even with AI windfalls, could offset its ridiculous valuation,” Wright’s Research opined.
The investor points out that Palantir’s Price-to-Sales ratio of 35.24x and EV/EBITDA of 190.83x are exceptionally high compared to competitors, nearing historically extreme levels.
The investor acknowledges the strong argument for future, AI-powered private sector growth for Palantir. However, according to Wright’s Research’s calculations, even exceptionally optimistic forecasts would only provide slightly more than 5% IRR by the end of 2033, barely more than risk-free 10-year U.S. treasury bond yields of 3.72%.
“Virtually the only way we see Palantir being undervalued if it were (sic) to shock investors and deliver in excess of 20% compounded revenue growth over the next 10 years,” notes Wright’s Research.
On the flip side, if growth falters, the downside could be steep. A reversion to the sector’s median valuation would lead to “a staggering 68.76% drop from current levels,” Wright’s Research warned.
Adding to the skepticism, Wright’s Research points to insider activity, noting that key figures like co-founder Peter Thiel and CEO Alex Karp have been selling significant amounts of Palantir stock. The investor notes that these moves “raise some questions among investors as to whether we may be in overvalued territory.”
Believing it is now time for ordinary investors to also “wind down their positions,” Wright’s Research rates Palantir a Sell. (To watch Wright’s Research’s track record, click here)
Wall Street shares a similarly cautious outlook. Of the 15 analysts who issued ratings over the past three months, 6 advocate Sell, 5 suggest Hold, and 4 recommend Buy, resulting in a consensus rating of Hold (i.e. Neutral). Palantir’s average 12-month price target of $27.08 suggests a potential downside of 27% from current levels. (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.
