Palantir Is an AI Stock Champion. Its Valuation Is an Issue for Wall Street. -- Barrons.com

Dow Jones11-05

Adam Clark

Palantir Technologies' latest quarterly earnings further cement the software company's status as a winner from the artificial-intelligence boom. Now the issue is whether even that can justify the stock's astronomical valuation.

Palantir shares were up 14% at $47.29 in premarket trading on Tuesday after third-quarter earnings beat expectations on the back of major contracts with the U.S. government. The stock had already more than doubled this year so far amid AI excitement.

Other software stocks that became favorite plays of retail traders on the AI theme such as C3.ai have disappointed this year, with attention shifting instead to utilities and nuclear-energy plays. However, Palantir has continued to surge and recently joined the S&P 500.

Some are backing the move to continue. Wedbush analyst Daniel Ives, a longtime bull on Palantir stock, raised his target price to $57 from $45 and kept an Outperform rating.

"The company continues to win share in this massive land-grab opportunity for enterprise AI solutions," wrote Ives in a research note.

However, skeptics noted that Palantir only raised its revenue guidance slightly, as quarterly commercial revenue came below expectations. The company has consistently argued that commercial deals are a bigger opportunity than federal-government contracts, which can be unpredictable.

Palantir said its government sales rose 33% in the third quarter to $408 million while total commercial sales rose 27% to $317 million. Analysts had estimated total government sales of $378 million and commercial revenue of $328.5 million.

Non-bullish analysts are ceding some ground in the face of Palantir's growth. D.A. Davidson analyst Gil Luria raised his price target on the stock to $47 from $28.

However, Luria noted the premarket rise on Tuesday leaves Palantir's share price trading at around 32 times its forecast revenue for 2025, which he called "an unprecedented premium" to its software peers. He kept a Neutral rating on the stock. Palantir traded at a trailing price-to-earnings ratio of 475 times as of Monday's close.

Some are still calling for an eventual drop. Mizuho analyst Gregg Moskowitz reiterated an Undeperform rating on Palantir stock while raising his target price to $37 from $30.

"Valuation cannot and should not be irrelevant, and we find it increasingly difficult to justify Palantir's high multiple that in our view already discounts significant acceleration versus consensus expectations," Moskowitz wrote.

Write to Adam Clark at adam.clark@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

 

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November 05, 2024 09:46 ET (14:46 GMT)

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