Palantir (NYSE:PLTR) has rewarded its shareholders with an exceptional year, as the stock skyrocketed 115% in 2024, riding the AI-driven wave of growth.
This big data analytics firm leverages artificial intelligence to assist government and commercial clients in optimizing their data management for enhanced decision-making. In Q2, Palantir’s U.S. commercial revenue surged by 70% year-over-year, as companies rushed to capitalize on the AI revolution.
But will this momentum continue? A 5-star investor, known by the pseudonym Kumquat Research, believes the stock may have hit its peak and could be on the verge of a pullback.
“Valuation concerns and macro risks make it tough to justify an investment at current levels,” the investor explains, adding that “economic slowdown fears could impact AI spending, making Palantir’s rich valuation vulnerable to market corrections.”
Palantir certainly has plenty going for it, acknowledges Kumquat, as the company is among only a handful of firms that have successfully cracked the code to profit from AI-driven customer solutions. However, the investor warns that Palantir’s lucrative market position could be challenged as competition in the space heats up.
“The barriers to entry for a market like this are not very high,” writes Kumquat. “This does not have the signs of a high-margin business long term.”
Another big concern for the investor is the prospect of an economic downturn, which would force customers to cut back on AI initiatives and directly harm Palantir’s prospects.
“Make no mistake, AI spending is a luxury good – one that will falter should the broader economy begin to struggle,” Kumquat warns. “In such a situation, the companies that have hitched their wagons to AI and stocks with extremely rich valuations will be the ones to suffer the most. PLTR is both.”
About that valuation, Kumquat is fairly bearish. The company’s valuation is based on a P/E that is slightly over 100, which the investor notes is significantly higher than Nvidia’s P/E of 42.
Adding to these concerns, both co-founder Peter Thiel and CEO Alex Karp have been offloading substantial amounts of stock, signaling to Kumquat that the current share price may have already peaked.
With these risks and what Kumquat deems an “excessively rich valuation,” the investor rates Palantir shares a Sell. (To watch Kumquat Research’s track record, click here)
Wall Street doesn’t appear overly optimistic either. Of the analysts covering PLTR, there are 4 Buy, 6 Hold, and 6 Sell ratings, leaving Palantir with a consensus rating of Hold (i.e. Neutral). The average 12-month price target of $27.08 suggests a potential downside of around 27%. (See PLTR stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
