Palantir Technologies: A Red-Hot Rally, But Can It Last?
A Stunning Uptrend
Palantir Technologies (NASDAQ: PLTR) has been on an incredible run in 2024, with its stock price soaring 290% year-to-date. The past month has been particularly impressive, with a 62% surge following the release of its third-quarter results on November 4. The driving force behind this rally is the growing demand for Palantir’s artificial intelligence (AI) software platform from enterprises and governments.
Wall Street’s Cautious Outlook
Despite the impressive performance, Wall Street analysts are not convinced that Palantir’s stock will maintain its momentum in 2025. The average one-year price target is $38, indicating a potential 43% decline from current levels. Furthermore, 35% of analysts recommend selling Palantir stock, while only 15% suggest buying it.
Valuation Concerns
One major concern is Palantir’s rich valuation. The company is trading at 62 times sales and has a trailing price-to-earnings (P/E) ratio of 342. While its forward earnings multiple of 137 suggests an improvement in its bottom line, it is still significantly higher than AI pioneer Nvidia, which is growing at a much faster pace.
Growth Prospects
However, there are several factors working in Palantir’s favor. The company’s revenue growth rate has improved each quarter of 2024, driven by robust demand for its AI software platform. Additionally, Palantir has seen a significant increase in its customer count and deal size, building a healthy long-term revenue pipeline. The company’s strong unit economics, with a non-GAAP operating margin of 38%, also suggest that it is making more money from its customers.
Looking Ahead
While Palantir’s valuation may be a concern, the company’s growth prospects are promising. If it continues to outperform analysts’ expectations and achieves stronger levels of revenue and earnings growth, it may be able to justify its valuation and head higher in 2025. However, conservative investors may want to consider other options to capitalize on the AI boom, as Palantir’s expensive valuation makes it prone to volatility.
Alternative Options
For those looking to invest in AI stocks, Nvidia may be a more logical choice, given its faster growth rate and lower valuation. The Motley Fool Stock Advisor team has also identified other promising stocks that could produce monster returns in the coming years.
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