Over the past year and a half, artificial intelligence (AI) has dominated investor interest, driving significant gains in stocks associated with this transformative technology trend. However, according to Brian White from Monness Crespi Hardt, a highly regarded analyst, this fervor may be reaching its peak.
White, known for his expertise in stock analysis and ranking among the top 1% of analysts, recently expressed skepticism about the sustainability of AI-related stocks’ meteoric rise. Citing a lackluster earnings season for enterprise software and the underwhelming revenue performance across the industry despite the hype around AI, White believes the market sentiment towards software stocks with inflated valuations is shifting.
One particular company caught in White’s scrutiny is Palantir Technologies (NYSE: PLTR), which saw its shares surge by an impressive 167% in 2023 and an additional 41% since then. White points out that Palantir now holds the distinction of having the highest valuation among enterprise software stocks, a status he describes as reaching a “gluttonous extreme.”
Consequently, Brian White downgraded Palantir from Neutral to Sell and set a price target of $20 per share, implying a potential 16% decline over the next year. He highlights that while Palantir might be an extreme case, similar concerns extend across the broader enterprise software sector. The recent quarterly performances of prominent Software-as-a-Service (SaaS) companies like Salesforce, Workday, and Oracle have been disappointing, resulting in significant stock sell-offs.
White underscores Oracle’s case, where despite positive narratives around AI initiatives and growth in committed revenue, actual financial results fell short of market expectations, leading to uninspiring forward guidance.
Reflecting the sentiment among White’s peers, three other analysts also recommend selling Palantir shares, while six maintain a Hold rating, contributing to a consensus Hold rating on the stock. The average price target of $22.55 indicates a potential decline of approximately 7% from current levels.
In conclusion, Brian White’s cautionary outlook on Palantir and other enterprise software stocks underscores a broader skepticism about the sustainability of current valuations amidst a challenging macroeconomic environment and shifting investor priorities. As investors navigate these uncertainties, careful analysis and consideration of market dynamics will be crucial in making informed investment decisions in the AI and software sectors.