In the days leading up to the Q3 print and since reporting blockbuster Q3 FY24 results on November 4, Palantir Technologies (PLTR) stock has been hitting new 52-week highs. The question remains, however, whether Palantir is still a Buy? Yesterday, PLTR shares touched another fresh high of $63.39, taking its market cap to $138.21 billion. Year-to-date, PLTR shares have surged over 253%. Nonetheless, analysts remain cautious on the stock due to its steep valuation.
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Palantir’s Elevated Valuation and Complex Business Model
Palantir has been touted as an AI (artificial intelligence) star, that keeps rising to new highs with every small bit of news. Along with this, its valuation multiples keep getting expensive, with the stock currently trading at a P/E (price/earnings per share) multiple of almost 300x and raising doubts about its sustainability. Having said that, retail investor sentiment on the stock is getting better, with a 4.4% increase in the number of retail portfolios (of investors using TipRanks’ Smart Portfolio) holding PLTR shares in the last 30 days. But do investors clearly understand Palantir’s business model, or is everyone just jumping on the bandwagon?
Palantir is a Software-as-a-Service (SaaS) provider that specializes as a big data analytics company. It has two main software products: Foundry and Gotham. Both these offerings allow businesses from various domains to collect data, create machine learning (ML) models, and assess insights from analytical applications. Palantir also has the Apollo software that enables continuous integration/continuous delivery of applications at speed across teams. All this information can be too complicated for an average investor.
Meanwhile, Palantir has an AI platform (AIP) that supports the functioning of large language models (LLMs) and generative AI models. The company sells this software to both Government entities and Commercial customers, with the Government segment contributing significantly to its revenue growth. However, it becomes difficult to predict revenue streams from government contracts as they are dependent on external factors such as budgeting constraints, changes in administration, and policies.
Analysts Cautious on PLTR’s Superfluous Growth
Wall Street analysts have become wary of Palantir’s superfluous growth trajectory amid the AI boom. Since its results, only one analyst has given a Buy rating on PLTR, while five analysts retained a Hold rating, and six maintained a Sell rating on the stock. Furthermore, even though some analysts have lifted their price targets on the stock, the average Palantir Technologies price target of $33.73, implies a massive 44.4% downside potential from current levels. This suggests that analysts are cautious about the upside in Palantir stock following a massive rally.
Moreover, hedge funds are slowly bailing out. Hedge funds decreased their Palantir holdings by 4 million shares in the last quarter. Based on the data of TipRanks Hedge Fund Trading Activity tool, PLTR currently has a Negative Hedge Fund Confidence Signal.
Ending Thoughts
The differing aspects of Palantir make it confusing to predict the stock’s future. The stock keeps marking new 52-week highs, backed by the AI boom. If Wall Street analysts are to be believed, it is time to stay on the sidelines. Meanwhile, retail investors are enjoying the fruits of the current stock wave. It is important to understand the underlying business model of the company before making any investment decisions. The bull and bear cases for a stock will always exist, investors must use their own research and judgment before investing.
