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Analysts sound alarms on Palantir stock into 2025
Buying high-valuation stocks is a gamble — betting big on growth but risking a hard fall if sentiment fades and expectations aren’t met.
Palantir Technologies ( PLTR ) showcases this possibility. As a market darling in artificial intelligence and data analytics, the stock has quadrupled year-to-date.
Its sky-high valuation makes investors wonder whether the price is fair or a bubble.
Palantir provides big-data analytics. According to investment firm GraniteShares, Palantir’s products enable its clients to “detect patterns and uncover hidden connections in large datasets.”
The U.S. government is Palantir's largest client. It also serves enterprise clients like two European giants, Airbus in producing jets and health-care company Merck KGaA.
Palantir said on Dec. 18 that it had extended a $400.7 million contract with the U.S. Army for up to four years, with a ceiling of $618.9 million.
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The company and the Army have partnered since 2018 in a program known as Army Vantage.
“The Army has leveraged Palantir’s software to transform how it uses data and artificial intelligence to more effectively perform essential missions and enable faster decision-making across the force,” Palantir said in a statement.
Palantir rallied nearly 4% following the news. The stock will join the Nasdaq 100 Index on Dec. 23.
Strong demand boosts Palantir profit and stock
Palantir’s surge is driven by the company’s expanding role in AI and increased demand for the technology and its applications.
In November, the company posted quarterly results and guidance well above Wall Street expectations.
Palantir earned 10 cents a share in the third quarter, topping the 9 cents Wall Street expected. Revenue of $726 million surpassed the $701 million consensus estimate.
Related: Analysts overhaul Palantir stock price target after Q3 earnings
Chief Executive Alex Karp credited the performance to soaring demand for artificial intelligence.
“We absolutely eviscerated this quarter, driven by unrelenting AI demand that won’t slow down,” Karp said in the earnings release.
“Our business growth is accelerating, and financial performance is exceeding expectations,” he added.
Looking ahead, Palantir projected Q4 revenue of $767 million to $771 million, ahead of analysts’ $741.4 million forecast.
For full-year 2024 the company raised its revenue guidance to a range of $2.805 billion to $2.809 billion, a 26% growth rate.
Through all this, insiders have been selling Palantir shares over the past two months.
Chasing Palantir surge could be risky, analysts warn
UBS initiated coverage of Palantir with a neutral rating and $80 price target, thefly.com reported on Dec. 19.
The investment firm has a positive view of Palantir's fundamentals. Its analyst said Palantir is well-positioned for AI-driven growth and described it as a “key AI-data winner.”
UBS estimates Palantir's revenue growth at 28% in 2025 and 25% in 2026, above the Wall Street consensus.
But the firm is concerned about the stock's valuation.
Related: Here's what a veteran trader who forecast Palantir's stock rally says now
“The main thing keeping us on the sidelines is valuation, which at 49 times [revenue] and 124 times [free cash flow] on 2025 estimates was simply tough to get over,” the firm wrote.
Multiples of that size could indicate that the stock is overvalued compared with peers, and the price might not be sustainable if the company fails to meet growth expectations.
More than a week ago, Baird also initiated coverage of Palantir with a neutral rating. The price target: $70.
The investment firm says Palantir has excelled at producing generative-AI applications, but the growth potential is offset by the stock's valuation.
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Baird is "wary of chasing" the shares given the strong year-to-date performance and valuation.
Of 16 analysts surveyed by TheStreet, 2 rate Palantir strong buy, 7 suggest holding, 2 advise a moderate sell, and 5 recommend a strong sell.
Palantir stock closed at $74.21 on Dec. 20.
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