Palantir’s Premium Valuation Faces Reality Check
As Palantir Technologies Inc. prepares to report its quarterly results, the data analysis and software company’s premium valuation is under scrutiny. After a remarkable 140% rally this year, driven by artificial intelligence-driven optimism, investors are now questioning whether the stock’s high price is justified.
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 stock’s valuation, stating that it is “unsustainable” unless the company delivers a substantial beat-and-raise quarter.
Bullish Investors See Opportunity
On the other hand, bullish investors believe Palantir’s AI-enabled platform has significant potential. Ted Mortonson, managing director at Robert W Baird & Co., notes that the company has seen upticks in both the enterprise and government sectors, making it one of the few Gen AI-enabled companies with a strong track record.
Earnings Expectations
Palantir is expected to report third-quarter adjusted earnings per share of 9 cents, up 29% from last year, and revenue of approximately $704 million, a 26% year-over-year increase. Investors will be closely watching customer additions and sales of AI tools to corporate customers, as well as revenue growth from government clients.
Commercial Sector Wins Key to Success
Portfolio manager Joe Tigay, of Equity Armor Investments LLC, believes Palantir must continue to demonstrate momentum in commercial contracts to justify its valuation. The company has won several new corporate clients this year, including CBS Broadcasting and General Mills Inc., but RBC’s Jaluria is skeptical about Palantir’s ability to maintain this pace given high levels of competition.
Return on Capital a Concern
RBC analysts also note that Palantir’s rally has been driven by retail investors, who may become frustrated if the company doesn’t start returning meaningful capital to shareholders. With a $4 billion cash balance and no dividend in sight, investors may begin to question Palantir’s commitment to sharing its wealth.
Tech Giants in Focus
Meanwhile, Nvidia Corp. is threatening to reclaim the title of the world’s most valuable company from Apple Inc., as its shares rise in premarket trading. The chipmaker’s inclusion in the Dow Jones Industrial Average has boosted its stock, while Apple shares have fallen following Warren Buffett’s Berkshire Hathaway’s continued sales of the company’s stock.
Leave a Reply