Palantir (NASDAQ:PLTR) shares are up by a ginormous 393% over the past year, making it one of the market’s biggest winners. While it’s true that its AIP (AI platform) offering leaves the company well-positioned in the AI game, it’s safe to say plenty of hype has played its part in driving the gains too.
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With the big data company slated to release its Q4 results on Monday (February 3), this is a point picked up by Jefferies analyst Brent Thill, who highlights what has become a monstrous valuation.
“At 50x NTM rev, PLTR is the most expensive software name and >2x the next highest peer,” the 5-star analyst said. “The 4Q setup will be challenging as PLTR is lapping easy comps and any signs of non-accelerating growth could lead to further multiple compression.”
Thill thinks Palantir benefited from easier year-over-year comps starting in 3Q23, along with growing momentum from AIP, which helped drive faster growth through 3Q24. However, starting in Q4, the y/y comparisons will get much tougher – for example, U.S. commercial revenue growth will be compared against a much higher 70% growth rate (up from 33%), and total revenue growth will be up against 20% (up from 17%). Given these higher benchmarks, it will be much harder for Palantir to maintain or accelerate its growth.
Meanwhile, Palantir’s EV/NTM (enterprise value-to-next-12-months) revenue multiple has compressed by 5% this year, dropping from 52x to 50x, after experiencing an expansion of a massive 282% in 2024. The last time this kind of extreme growth in valuation multiples took place was during the Covid bubble, when high-growth companies like Snowflake, CrowdStrike, and Datadog saw their valuations surge. “However,” Thill goes on to add, “we are now in a more normalized macro environment, and we think any negative factors (decelerating growth, changing interest rates, AI hype turns, insider selling, etc) may cause PLTR’s multiple to further compress.”
According to Thill’s calculations, even if Palantir manages to accelerate its growth to 50% annually, it would still need to trade at a 13.5x EV/revenue multiple in 2028 just to maintain its current stock price. This would make it one of the most expensive software stocks even four years from now. To achieve just a 20% share price increase, Palantir would need to trade at a 16x multiple.
Fundamentals might “remain robust,” but with the valuation completely out of whack, Thill rates PLTR shares an Underperform (i.e., Sell), along with a $28 price target. The figure represents a possible downside of 65% over the next 12 months. (To watch Thill’s track record, click here)
Thill is joined by 5 other analysts in the bear camp and with an additional 9 Holds and 2 Buys, PLTR stock claims a Hold consensus rating. That might as well be a Sell, though, considering the $51.50 average price target implies shares will retreat by ~38% in the months ahead. (See Palantir stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
