Palantir's stock price has surged nearly 150% this year, but analysts are pessimistic about its future prospects, believing that the stock price may fall by more than 30% in the next 12 months. Analysts point out that Palantir's high valuation is the main reason, with its expected P/E ratio exceeding 100 times, far higher than other artificial intelligence companies. Wall Street analysts have generally downgraded their ratings, believing that the risks have increased after the stock price rise, and investors need to be cautious
According to the Zhitong Finance APP, Palantir (PLTR.US), which provides data analysis tools for enterprises and governments, has seen its stock price surge by nearly 150% year to date, thanks to the company's inclusion in the S&P 500 index in September and its success in utilizing artificial intelligence.
However, Wall Street analysts do not believe that Palantir's strong momentum will continue. The average target price set by analysts implies a downside potential of over 30% for the stock in the next 12 months. Analysts' caution mainly stems from Palantir's high valuation, with an expected P/E ratio of over 100 times, a significant premium compared to other AI companies. In contrast, the expected P/E ratio of "AI giant" NVIDIA (NVDA.US) is around 37 times, and the expected P/E ratio of software company Oracle (ORCL.US), which also benefits from AI-related positives, is only 26 times.
Analysts led by Brian Gesuale from Raymond James stated in a recent report that Palantir's stock "needs to consolidate the huge gains of the past few years." The analysts downgraded their rating on Palantir, adding that the rise in stock price means Palantir has "no room for error" when announcing its performance next month.
Wall Street analysts are generally pessimistic about Palantir's prospects. Among the 21 analysts tracked by Bloomberg, only 4 recommend buying the stock, while the remaining 10 give a "hold" rating and 7 give a "sell" rating.
Some investors in Palantir also believe that the stock may experience volatility after the significant increase. Joe Tigay, portfolio manager at Equity Armor Investments LLC, said, "Palantir has risen too fast, with such a high valuation, it may fall due to bad news."
Palantir's financial results for the second quarter of 2024, announced in early August, showed a 27% year-on-year revenue growth to $678 million, surpassing market expectations of $652.8 million; a 20% year-on-year net profit growth to $134 million, significantly exceeding market expectations of $82.8 million; and an adjusted EBITDA of up to $262 million, a substantial 39% year-on-year increase. The second-quarter performance demonstrates that under the strong promotion of the "Palantir AI Platform" built on its brand-new generative AI technology, Palantir continues to expand its commercial and government business scale.
What excites investors even more is that Palantir has raised its total revenue guidance for 2024 to a range of $2.74 billion to $2.75 billion, while analysts generally expected it to be around $2.7 billion; the company has also significantly raised its adjusted operating profit guidance for this year to a range of $966 million to $974 million, compared to analysts' general expectation of around $883 million Palantir is set to announce its financial results for the third quarter of 2024 in November. Analysts currently expect the company's Q3 revenue to grow by 26% year-on-year to $702 million. In addition, investors will also be watching for updates on the company's new clients. Joe Tigay stated, "I am more concerned about the total number of clients the company has." He added that in the short term, acquiring clients is more important for Palantir than profitability.
In 2023, Palantir made a significant impact with the launch of the Palantir Artificial Intelligence Platform (AIP), which has been widely adopted by over 100 organizations globally, including in the healthcare and automotive industries. This year, Palantir's AI tools have attracted new clients such as CBS, General Mills, and Aramark Services. The company continues to secure large contracts with the US government and its allies, with government revenue accounting for a significant portion of its total revenue.
Jim Worden, Chief Investment Officer of Wealth Consulting Group, mentioned that while Palantir's stock price may experience volatility after the earnings announcement, this may not necessarily be a bad thing and could indicate further upside potential for the stock. Worden believes that Palantir's business with government agencies provides an "anchor." He stated that Palantir has a "first-mover advantage, government contracts are sticky, and the switching costs are high."
Hilary Frisch, Director and Senior Research Analyst at ClearBridge Investments LLC, highlighted the need for Palantir to make tangible progress in attracting more clients. The analyst added that the recent surge in Palantir's stock may have been driven by retail investors rather than institutional investors, and the recent inclusion of the stock in the S&P 500 index may have caused some volatility, indicating that the company will be included in index-tracking funds held by major investors. Analysts noted that companies often need some time to grow to a level that matches their valuation after being included in major indices