Palantir Technologies shares edged lower in early Monday trading after a top Wall Street analyst assumed coverage of the stock with a cautious outlook heading into the year.
Palantir (PLTR) shares, which added around $150 billion in market value last year, were a standout performer in the data analytics and AI-tech space as investors bet on the profit potential of its government contracts and its addition to the S&P 500 in late September.
The group justified some of that investor sentiment earlier this fall when it boosted its full-year revenue forecast for the third time this year, thanks in part to outsized gains from its non-military business.
Palantir’s U.S. business saw revenue rise 44% over the three months ending in October to $499 million, the bulk of it coming from its government-focused business.
Commercial revenues, which include the testing and reworking of artificial-intelligence systems through its AIP Logic platform, as well as “boot camps” for companies that are scaling the new technology across its business processes, grew at a faster rate to $179 million.
Palantir shares, a standout performer in the AI-tech space, added around $150 billion in market value last year.
“To put it bluntly, if executive management teams and decision makers want to get their AI initiative into live production environment rapidly, Palantir has emerged as one the select few partners to call,” said Morgan Stanley analyst Sanjit Singh.
Palantir valuation concern
Singh, however, argues that while the bank’s “positively revised assessment of Palantir’s positioning in the Generative AI cycle is well reflected in shares”, he remains cautious on its near-term outlook.
“While we acknowledge this positive inflection and are looking for ways to become more constructive on shares, the lack of visibility on material estimate revisions leaves Palantir trading too far ahead of the company’s intrinsic value to justify a rating upgrade,” Singh and his team wrote in a note published Monday.
Related: Analysts reveal AI stock picks for 2025, including Palantir
The analyst, who assumed coverage of the stock this year, pegged his price target and $60 per share and assigned an ‘underweight’ rating to the Denver-based group.
Singh argues that Palantir’s stunning 340% gain last year was “driven almost entirely by multiple expansion”, particularly with respect to the value investors assigned to the stock compared to the sales forecasts for the next twelve months.
Palantir said it sees 2024 revenues in the region of $2.805 billion to $2.809 billion, an 8% improvement from its prior forecast, with operating income of around $1.055 billion.
Revenue growth lags cash flow
Singh notes that Palantir’s free-cash flow growth rate for this year is pegged at around 41%, “but largely due to expense discipline rather than revenue upside, as CY25 revenue estimates are only +10% higher compared to the start of the year, and with management signaling an investment cycle ahead, further expansion looks muted.
Related: Analysts sound alarms on Palantir stock into 2025
He also notes that Palantir’s fast-growing commercial business, “where most of the AI narrative is expected to play out”, is likely to contribute less to its 2025 sales outlook than its legacy government business.
More AI Stocks:
Top analyst revisits Micron stock price target ahead of Q1 earningsAnalysts revamp Ciena stock price target after AI outlookCathie Wood buys $30 million of under-the-radar AI stock
“Business momentum now appears to be stabilizing versus inflecting higher, with 13 of 23 [key performance indicators] down-ticking quarter-over-quarter in Q3, after showing the best rate-of-change improvements in the prior quarter,” Singh and his team wrote.
Palantir shares were marked 1.7% lower in premarket trading to indicate an opening bell price of $78.54 each.
Related: Veteran fund manager issues dire S&P 500 warning for 2025
