After Earnings, is Palantir Stock a Buy, Sell or Hold?

With strong momentum for the artificial intelligence platform, here’s what we think of Palantir’s stock

Malik Ahmed Khan 14 February, 2024 | 1:13PM
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Palantir COO Shyam Sankar

Palantir released its earnings report on February 5. Here’s Morningstar’s take on Palantir’s earnings and stock.

Key Morningstar Metrics for Palantir

• Fair Value Estimate: $15.00

• Current price: $24

• Morningstar Rating: 2 stars

• Morningstar Economic Moat Rating: Wide

• Morningstar Uncertainty Rating: High

What We Thought of Palantir's Earnings

Palantir saw strong results in the quarter, with good momentum for its artificial intelligence platform in the US commercial market. We see this as a promising leading indicator, since these customers are often early adopters of software solutions, ahead of their global peers.

There appears to be a clear delineation between the fundamentals-focused perspective on Palantir and how the street is valuing it. We are very bullish on the firm, but we cannot justify its current market price. While our near-term estimates are ahead of consensus on both growth and profitability, our fair value estimate is markedly below the street. We saw Palantir trade at elevated multiples before the wind was taken out of its sails (and sales), so we’d be wary of a repeat of 2022/early 2023.

PLTR Bulls Say

Palantir has strong secular tailwinds. The artificial intelligence/machine learning market is expected to grow rapidly due to the exponential increase in data harvested by organizations.

• With products targeting both commercial and governmental clients, Palantir has a distributed top line, with noncyclical governmental revenue insulating the overall top line during lean times.

• Palantir’s focus on modular sales could lead to substantially more commercial clients, which the firm could subsequently upsell.

PLTR Bears Say

• By not selling to countries or companies that are antithetical to its mission and cultural values, Palantir has restricted its growth opportunities.

• Palantir’s AI platform is off to a good start, but we anticipate robust AI competition in the years ahead.

• Palantir’s executive team has made questionable strategic decisions in the past. While past performance isn’t necessarily indicative of future results, the missteps could merit caution from potential investors.

Is Palantir Stock Fairly Valued?

With its 2-star rating, we believe Palantir’s stock is overvalued compared with our long-term fair value estimate.

We forecast that Palantir’s revenue will see a 21% compound annual growth rate over the next five years as it expands both its governmental and commercial operations. We expect the majority of this top-line growth to be driven by commercial clients as the company seeks to broaden that base. While government clients can be sticky, large governmental contracts create lumpiness in revenue. As a result, Palantir’s shift to more commercial clients should create a more ratable revenue mix. We also expect the firm to continue expanding sales within its existing client base, based on its strong net retention rate.

 

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Palantir Technologies Inc Ordinary Shares - Class A20.47 USD-3.12Rating

About Author

Malik Ahmed Khan  is an equity analyst, technology, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

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