Palantir Technologies has been one of this year's standout technology stocks. However, customer concerns over data ownership could limit the analytics-software company's future gains, according to William Blair analysts.
The worries for Palantir were highlighted by a presentation given by U.S. Army officials last week. Comments made in the presentation suggested there might be friction between the Army and Palantir over data ownership as part of the company's four-year $458 million contract for the Army Data Platform, according to William Blair analyst Louie DiPalma. That contract started in December 2019 and is set to end within weeks.
"The tone of the comments and plan to 'maximize the use of open-source vendors' provide a strong indication that Palantir's renewal contract...will be significantly less than the original $458 million," wrote DiPalma in a research note.
DiPalma said it seemed likely the Army would give Palantir a two-year contract and build a future system with multiple vendors, thus reducing its $116 million-per year revenue stream over the medium term.
Palantir didn't immediately respond to a request for comment. Its shares have soared this year on excitement over how artificial intelligence could boost the company's business
While the William Blair analysis focuses on a single contract, Palantir is highly exposed to federal government contracts and is known for its defense and intelligence work.
William Blair's DiPalma has an Underperform rating on Palantir stock, noting shares currently trade at 125 times its forecast 2023 free cash flow and arguing there is potential for that to compress to a mid-30s multiple.
"Over the next 12 months, we expect Palantir's multiple to compress as a result of competitive pressures for new defense contracts," DiPalma wrote.
Palantir stock was down 9.23% on Monday at $18.40, having more than tripled this year so far.
