Palantir Technologies (NYSE: PLTR) has experienced significant growth in its stock price throughout 2024, driven by factors such as improving margins, increased adoption of its artificial intelligence (AI) services, and anticipation of long-term benefits from the ongoing technological revolution. Year to date, the company’s shares have surged by 34%, and over the past 12 months, they have skyrocketed by 186%.
Despite this impressive performance, one Wall Street analyst firm, Monness, Crespi, Hardt & Co., has taken a more cautious stance on the stock. In a recent note published on Thursday, the brokerage firm maintained a price target of $20 per share for Palantir but downgraded its rating from neutral to sell.
Following the updated coverage, Palantir’s stock price experienced a pullback during Thursday’s trading session, declining by 6.1%. With the current stock price hovering around $23 per share, Monness’ price target implies a downside of 13% from its current level.
What comes next for Palantir stock?
According to Monness, Palantir Technologies remains positioned to capitalize on the ongoing trends in artificial intelligence (AI) over the long term. However, the firm has raised concerns about the company’s valuation, which it considers to be overly stretched. While acknowledging Palantir’s potential for growth, particularly within the AI sector, Monness believes that the current valuation does not accurately reflect the company’s performance and prospects.
One key issue highlighted by the analyst is Palantir’s uneven sales performance, particularly in its dealings with government clients. This inconsistency in revenue generation raises questions about the company’s ability to sustain growth and meet investor expectations over the long term. Additionally, Monness expressed a cautious outlook regarding the broader economic landscape, suggesting that challenging times may lie ahead.
In terms of valuation, Palantir’s stock is trading at approximately 70 times its expected earnings for the year and 19 times its expected sales. These metrics indicate a valuation heavily reliant on future growth potential. While Palantir has indeed experienced a resurgence in sales growth, driven partly by the rollout of its Artificial Intelligence Platform suite and improvements in margins, Monness believes that the current valuation may be excessive given the risks involved.
Given these concerns, investors with a lower risk tolerance may opt to explore alternative investment opportunities within the AI sector that offer more conservative valuations. By considering the insights provided by Monness and conducting thorough due diligence, investors can make informed decisions about their investment strategies in the rapidly evolving field of AI technology.