Palantir is putting up a stock rally that’s only matched by Nvidia…. It is now the best performing S&P 500 stock this year after a jaw-dropping 340% rise.
The company zoomed past $100 billion in market cap and has its sights set on the $200 billion mark, fueled by a recent switch to the Nasdaq exchange and Nasdaq 100 membership hype.
It’s all very impressive until you see this: Palantir trades at a nosebleed-inducing 156 times forward earnings versus a modest 22x for the S&P 500. Translation: The stock is running much faster than its actual growth projections.
It’s got all the signs of an AI retail frenzy. But Wall Street is not buying the excitement around Peter Thiel’s most successful company.
Fans vs. skeptics
Of the 20 analysts covering Palantir, only three rate it a “buy” — an uncommon sight in booming AI tech stocks. The consensus? It’s overvalued, with some price targets forecasting a brutal 40% drop.
Monness Crespi Hardt says the valuation is “extreme” and “dreamy.” It has a $18 target, which is nearly 70% below current levels.
Even the most optimistic price targets imply a limited upside, if anything. Wedbush Securities has a 12-month forecast of $75 per share, a humble 3.4% increase from now.
Though analysts do expect Palantir’s revenue to grow rapidly through 2028, they seem convinced that the stock price is inflated, leaving no room for further upside.
A big data gamble
There are also possible issues with governance. The CEO, Alex Karp, doesn’t have a lot of fans on Wall Street. And there are also concerns about whether the company’s new AI product is REALLY ALL THAT.
For most of its life, Palantir has been known as a big data company making software mostly for governments.
In 2023, it launched a platform that allowed its clients to connect generative AI into real-world operations, called the Artificial Intelligence Platform. This supercharged the stock.
There are analysts like Baird’s William Power, who are impressed by this new platform. But even he is “wary of chasing” the stock after its four-fold jump this year. Baird is “neutral” on the stock — hold if bought, but don’t top up.
Something to note: Jefferies had recommended selling the stock last month and noted how Palantir bosses were selling the stock as it rallied.
Though under a predetermined plan, it’s still worth highlighting how $PLTR CEO offloaded >$1.2B of stock over the past 3 months, or ~14% of his stake.
What’s next?
More than 50% of Palantir’s revenue comes from government contracts rn. Business from this segment, which includes defense and intelligence agencies, rose 40% year-on-year to $320 million in the third quarter.
With Palantir already one of the top picks for US government AI solutions, could the push for increased efficiency through Elon Musk’s DOGE mean even more business? Something to keep an eye on.
The commercial side is growing fast too — 54% year-on-year in the US to $179 million —but it’s still dwarfed by government cash. How Palantir performs with this segment of customers could be the clincher when it comes to the direction the stock takes from here.
Perhaps that explains Karp’s aggressive proclamation in his most recent shareholder letter: “This is the software century, and we intend to take the entire market.”
Palantir is flipping the switch. Will the glow last or will it start to flicker?
