When individual investors are all in, why are the Wall Street analysts with their fancy finance degrees so damn cautious about Peter Thiel’s most successful company?
For most of its life, Palantir has been known as a big data company, making software mostly for governments. About a year ago, it launched a platform that allowed its clients to easily bring in outside AI tools (like chatbots or large language models made by others) and use them directly inside Palantir software.
This supercharged the company – it turned its first profit ever – and its shares. The stock has seen a whopping 160% spike this year and individual investors can’t get enough of this AI software builder.
But the analysts aren’t convinced. Only five out of 20 analysts covering Palantir have given it a “buy” rating – an uncommon sight in tech stocks. What’s more, they expect the stock to fall 35% in the next 12 months. What gives?
Unmatched
- Palantir’s stock is up more than 370% since its IPO in 2020, much more than the S&P 500’s gain.
- The cherry on top? The company was added to the S&P 500 in September, meaning more buyers as it will get picked up by ETFs tracking the index.
But… the shares are pricey. Palantir trades at 110 times forward earnings. That basically means the stock is running much faster than projected earnings growth. For context, that figure is 23x for the S&P 500.
Though analysts do expect Palantir’s revenue to grow rapidly through 2028, they seem convinced that the stock price is inflated, leaving no further upside. Also, Thiel sold over $1 billion worth of Palantir stock over the last month. Does it say something about how the stock is valued right now?
There are also concerns about whether the company’s AI product is REALLY ALL THAT. And possible issues with governance: CEO Alex Karp doesn’t have a lot of fans on Wall Street.
What to watch
But there are others who don’t see the risks outweighing the gains. Bank of America, for example, has forecast a 15.5% rise in Palantir’s stock to $50 over the next 12 months. The bank sees Palantir’s tech becoming somewhat of a standard and common “data OS” for the US government and big US businesses.
How Palantir performs could be the clincher when it comes to setting the direction the stock takes from here. More than 50% of Palantir’s revenue comes from government contracts right now.
But as Karp pointed out in his most recent letter to shareholders, Palantir’s commercial clients grew from 14 to 295 over the past four years. And from 161 last year thanks to that AI platform. The US has over 20,000 large businesses.
Palantir is flipping the switch. Will the glow last or will it start to flicker?
