The Artificial Intelligence (AI) market has bloomed into a behemoth, crossing the $184 billion mark in value — a substantial leap of almost $50 billion since the preceding year. Projections paint a picture of even greater heights, with estimates forecasting a surge beyond $826 billion by the year 2030. The AI euphoria is propelled by technological advancements and hefty investments across diverse sectors like healthcare and finance. Companies leveraging AI are reaping financial benefits, Palantir Technologies (PLTR) being no exception. The data analytics titan has witnessed its stock soar over 66% year-to-date, fueled by the expanding embrace of AI and stellar financial performance.
Yet, as Palantir readies itself to unveil its Q2 2024 earnings report in early August, the stock’s meteoric ascent has stirred skepticism. Despite the AI frenzy, several analysts adopt a wary outlook towards Palantir’s future. In a recent brokerage alert, one analyst went as far as to advise selling the stock before the upcoming earnings disclosure.
The Story So Far
Surpassing the $63.7 billion valuation mark, Palantir Technologies (PLTR) stands tall as a software entity specializing in big data analytics. Established in 2003 by Peter Thiel, Palantir has metamorphosed into a key player in data analysis and artificial intelligence. Initially reliant on government and institutional assessments, Palantir’s commercial wing has started contributing significantly to the company’s revenue stream.
Currently priced at $28.61 as of July 18, 2024, Palantir’s stock flirts with its 52-week peak of $29.30, leaping from the abyss of $13.68. The stock’s spectacular 67.68% surge year-to-date has grabbed investor attention.
Valuation Conundrum
Palantir’s valuation metrics project a glaring picture. Boasting a price-to-sales ratio of 23.64 and a forward P/E ratio of 86.76, the stock seems glaringly overvalued when contrasted with even the prospering giants of AI like Nvidia (NVDA) and Microsoft (MSFT).
This lofty valuation, a recurring critique voiced by analysts, renders the stock acutely susceptible to any hints of growth deceleration or missed projections.
A Rocky Past
This narrative played out in early May, where Palantir witnessed a drop in stock price despite outperforming Q1 revenue estimates.
In Q1 2024, Palantir disclosed a 21% year-over-year revenue surge, touching $634 million and surpassing the $625.43 million forecast. Marking the company’s sixth consecutive quarter of GAAP profitability, net income stood at $106 million with an EPS of $0.04 — aligned with expectations.
However, the stock slumped by 7% post-earnings revelation as below-par full-year guidance stifled investor excitement.
Analysts Duel on Palantir
At the core of a heated dispute among analysts stands Palantir Technologies, with conflicting viewpoints on its market value and expansion capacity.
Mizuho recently demoted Palantir to “Underperform,” driven by concerns around the company’s “low-quality” earnings triumphs and restricted earnings predictability. Matthew Broome, the analyst, ticked the stock’s price target up marginally to $22 while casting doubt on the sustainability of recent growth and internal transparency in Palantir’s commercial operations.
Moreover, mentioning the lofty valuation, Mizuho cautioned that “after the substantial 67% surge in shares YTD, justifying PLTR’s exorbitant multiple is becoming increasingly challenging.”
In harmony with this apprehensive sentiment, Jim Cramer recently vented frustration over Palantir’s business opacity, likening the company to a “giant black box.” He emphasized the need for clearer communication around their operational mechanics.
Contrastingly, Barchart’s Mark Hake, CFA, offers a more optimistic narrative. Hake’s evaluation hints that Palantir could attain a 30% free cash flow (FCF) margin, potentially generating $975 million in FCF by 2025 supported by projected sales of $3.25 billion.
By utilizing a 1.25% FCF yield valuation metric, Hake predicts Palantir could achieve a market value of $78 billion, translating to a price objective of $35 per share. This embodies a 22.5% positive movement from existing levels. Hake’s bullish stance is bolstered by Palantir’s sturdy revenue upsurge and the expanding embracement of its AI-driven platforms across government and commercial realms.
Adding to the optimistic prognostication,
The Palantir Technologies Conundrum: A Deep Dive into Analyst Divergence and Growth Drivers
Bank of America recently added Palantir to its best-of-breed stocks list, while Wedbush analyst Dan Ives has highlighted Palantir as a key beneficiary of the ongoing “AI party.”
The Analyst Mosaic on Palantir
Ives, who holds the Street-high price target of $35 for PLTR, argues that its massive installed bases in both enterprise and consumer spaces position it well to capitalize on the AI wave. Out of 15 analysts, the consensus rating is to hold the stock. This includes a mix of “Strong Buys,” “Moderate Buys,” “Holds,” “Moderate Sells,” and “Strong Sells,” showcasing a multifaceted spectrum of opinions among Wall Street experts. The mean price target of $22.07 indicates a possible downside of about 22.8% from Palantir’s Friday close, implying that analysts deem the stock significantly overvalued at current levels.
Despite the varied analyst viewpoints, the discourse surrounding Palantir’s future remains robust, with the upcoming Q2 earnings report expected to be pivotal in shaping its trajectory.
The company’s Q2 2024 earnings release is scheduled for Aug. 5, with analysts forecasting an average EPS of $0.04 for the current quarter and revenue around $652.47 million. For the full fiscal year 2024, analysts anticipate an average EPS of $0.16, signifying an estimated 100% growth from the prior year.
Unveiling Growth Catalysts at Palantir
Palantir Technologies is garnering attention with significant partnerships that promise to bolster its standing in the AI and space technology domains. A standout collaboration is with Voyager Space, a leading figure in space exploration. This strategic alliance aims to integrate Palantir’s state-of-the-art AI tools into Voyager’s operations, speeding up advancements in space and defense technology.
In another milestone, Oracle teamed up with Palantir, heralding a new chapter in cloud computing and AI. Palantir’s Foundry Platform and Artificial Intelligence Platform (AIP) are now certified on Oracle Cloud Infrastructure (OCI) and available across all of Oracle’s cloud deployment options. This partnership aims to elevate efficiency, performance, and security for businesses and governments globally.
Furthermore, the substantial progress Palantir has made in the corporate sector is worth noting. Palantir’s Artificial Intelligence Platform (AIP) is propelling impressive growth, with U.S. commercial revenue witnessing a 40% year-over-year surge in Q1 2024. The company’s innovative AIP bootcamps, boasting over 1,300 completions worldwide, are driving this expansion. With a remaining deal value of $4.1 billion, up 22% from the previous year, and performance obligations rising by 39% year-over-year to $1.3 billion, Palantir appears poised for a bright future as AI adoption gains momentum in different industries.
The Concluding Conundrum
Should investors consider divesting their Palantir stock ahead of the earnings report? Despite PLTR’s remarkable 66% year-to-date climb and robust AI-driven growth, valid apprehensions regarding its lofty valuation and limited earnings visibility have prompted a cautious outlook. Mizuho’s pre-earnings downgrade to “Underperform” underlines these concerns, hinting at the potential for a post-report sell-off.
While optimists highlight the AI potential and partnerships driving upside, the conflicting analyst ratings and lofty valuation advocate for prudence. With the Q2 earnings looming, investors should brace for likely volatility and exercise caution before making any significant decisions regarding Palantir.