Data Analysis Giant Palantir Faces Critical Earnings Test
As Palantir Technologies Inc. prepares to release its quarterly results, the data analysis and software company’s premium valuation is under scrutiny. Following a remarkable 140% rally this year, driven by artificial intelligence, investors are expecting tangible results to justify the company’s high price tag.
Wall Street’s Cautious Stance
Analysts have become increasingly cautious about Palantir, with the average target price implying a decline of over 30% in the next 12 months. RBC analysts, led by Rishi Jaluria, have expressed concerns about the company’s valuation, stating that it is “the most expensive name in software.” Palantir’s stock trades at over 100 times future earnings, significantly higher than its peers Oracle Corp. and Microsoft Corp., which trade at less than 30 times.
Bullish Investors See Growth Potential
Despite the skepticism, some investors remain optimistic about Palantir’s prospects. The company’s inclusion in the S&P 500 and its recent wins in the enterprise and government sectors have contributed to its growth. Ted Mortonson, managing director at Robert W Baird & Co., believes that Palantir’s AI-based platform is “powerful” and that the Street is underestimating its potential.
Third-Quarter Expectations
Palantir is expected to report adjusted earnings per share of 9 cents, a 29% increase from last year, and revenue of approximately $704 million, up 26% year-over-year. Investors will be closely watching customer additions and sales of AI tools to corporate customers. Wall Street estimates that revenue from government clients will grow 23%, while commercial sales are expected to increase by about 32%.
Commercial Sector Wins Key to Growth
Palantir has won several new corporate clients this year, including CBS Broadcasting, General Mills Inc., and Aramark Services Inc. Joe Tigay, portfolio manager at Equity Armor Investments LLC, believes that the company needs to continue to demonstrate momentum in commercial contracts to justify its valuation.
Skepticism About Commercial Sector Growth
RBC’s Jaluria, on the other hand, is doubtful about Palantir’s ability to maintain its pace of commercial sector wins, citing high levels of competition and the suitability of Palantir’s products outside of large, non-technical businesses.
Return of Capital to Investors
Jaluria also notes that Palantir’s rally has been driven by a high proportion of retail investors, who may become frustrated if the company doesn’t start returning meaningful capital to investors. Palantir doesn’t offer a dividend and has a significant cash balance, which could be used for share repurchases or other forms of capital return.
Leave a Reply