Palantir’s (PLTR), stock fell 6% Monday, after Morgan Stanley analyst Sanjit Singh began coverage by recommending an Underweight.
Singh praised Palantir’s “strong execution” and “momentum” and recognized it as “a top partner” for fast-moving AI project. However, he expressed concern about its overvaluation.
Singh has set the price goal at $60 per share. This suggests a possible downside of about 25%.
The AI-focused company that specializes in data analytics has undergone a major shift. In 2024 its shares soared 340%, and the market cap was over $150 billion.
Palantir, which outperformed Nvidia in the S&P 500 by 2024.
In the first year of the year, the stock price has fallen 1.01%, while S&P 500 is up 1.29%.
Singh, who acknowledged Palantir as a leader in the space of generative AI, expressed concern about the valuation. He argued that its premium price is more the result of hype on the market than sustained growth.
Why PLTR is growing
Palantir is at the forefront in the AI revolution. Its Artificial Intelligence Platform, or AIP, has driven significant growth.
Singh acknowledged that Palantir had underappreciated “several factors” in its decision to downgrade the stock from Equal Weight to Underweight, back in August 2023.
In fiscal 2024 the company’s US Commercial Segment grew by nearly 50% compared to 2023. This was fueled by “bootcamps” for enterprises and AI solutions.
A $619 million contract extension with the US Military for its Army Vantage product has been one of many key drivers of company success.
Palantir’s most recent quarter saw revenues in the US triple from last year, when they were $343 millions.
The company’s ability to generate revenue from multiple sources was demonstrated by its commercial ventures, which added an additional $179 million.
Singh added that the “business momentum” now appears to have stabilized.
Concerns about PLTR value
Singh says that while Palantir has demonstrated its operational excellence, the current price leaves very little room for upside in the near term. He added,
Palantir is a leading partner in AI implementation. However, the stock price of the company is much higher than its intrinsic value.
The stock price reflects a large part of future growth for the company, so it is difficult to justify a multiple premium.
Palantir analysts split over its trajectory
Palantir has been criticized for its outlook after the downgrade.
Analysts who are bullish, like Wedbush’s Dan Ives highlight the first-mover advantages of AI, and their ability to capitalise on trends over time.
Skeptics, like Singh, argue that hype around generative AI may have led to an excessive valuation that is not sustainable, particularly as the growth slows.
Singh isn’t alone
Rishi Jaluria, of RBC Capital Markets, has set a significantly lower price target for Palantir at $11.
The valuation of the company is based upon a multiple enterprise value to revenue of seven times what he forecasts for its revenues in 2025, which contrasts sharply with the current multiple 33 times.
Jaluria believes that Palantir’s risk/reward ratio is “skewed unfavorably.”
He noted in his most recent research report that government contracts were a major factor behind the firm’s strong earnings, and the timing of certain deals. Growth for the commercial sector has also slowed.
Palantir’s inclusion in the S&P 500 in 2024 further heightened investor excitement, but its recent decline reflects concerns about whether it can continue to grow in an AI market that is maturing.
The stock of Palantir could fall 25%. The reasons why this analyst says it may change as the updates unfold
