Palantir Technologies (NYSE:PLTR) impressed investors with its latest quarterly results on February 5, leading to an impressive 25% share surge. Analysts anticipated 100% earnings growth to 8 cents per share and nearly 19% revenue growth to $602.4 million, but Palantir exceeded revenue estimates, reaching $608.4 million in this key metric. Additionally, a bullish forward outlook has led to a shift from many previous bears. I’d include myself in this category. This is central to this PLTR stock outlook.
That said, not all Wall Street analysts are holding a bullish view on Palantir after its run. Let’s dive into whether PLTR stock should remain a buy in this light, and what some analysts are calling out. After all, it’s always worth hearing both sides of the coin on these major high-flying stocks.
HSBC Downgrades PLTR stock
HSBC recently downgraded Palantir to a hold from a buy, maintaining a $22 per share price target. Much of this downgrade appears to be tied to the company’s rather full valuation. Analysts noted Palantir’s focus on operational efficiency and growth, especially in its commercial segment, anticipating benefits from AI products and potential government contracts in 2024. However, at some point, a stock becomes fully valued. That appears to be what’s driving a rather “blah” outlook from analysts, in this case.
HSBC acknowledges Palantir’s robust commercial growth, particularly in the US, fueled by high demand for its AI platform. Despite a promising outlook, these analysts suggest that the company’s relatively high price-earnings to growth (PEG) ratio of 3.2-times for 2024 could suggest some room for consolidation. Given how far and fast PLTR stock has run, that may be increasingly becoming the consensus view among many in this stock, at least those with a value-oriented investing mindset.
The Bullish Angle
Of course, this analyst’s perspective is one of many. Plenty of other analysts and investors have a different view of Palantir, as a company with outsized growth potential and room for profitable growth.
Initially serving government sectors with AI tools, Palantir capitalized on AI’s commercial potential, experiencing substantial growth amid the latest adoption wave.
Palantir’s commercial segment surged in Q4, with revenue climbing 32% to $284 million, outpacing the 11% growth in government revenue. Notably, U.S. commercial clients led the charge, with a 70% revenue jump, mainly driven by a single product. This is a huge part of this PLTR stock outlook.
Notably, Palantir’s AI platform offers secure access to large language models (LLMs), enabling clients to build custom generative AI models without data privacy concerns. This empowers users to automate tasks and access real-time information for informed decision-making, all within their secure environment.
Ryan Taylor, who served as Chief Revenue Officer for 14 years, expressed on the Q4 earnings call unprecedented demand for AIP. Despite substantial growth, he emphasized Palantir’s untapped market potential, foreseeing significant upside. AIP’s growing influence in the business realm suggests ample opportunities, especially with anticipated government adoption.
Demand for PLTR Stock Counties to Rise
Palantir’s stock surged 4% post-earnings, resulting in a year-to-date increase of 45% and a 170% surge in the past year. Despite positive fundamentals, HSBC’s Stephen Bersey downgraded it to a hold due to valuation concerns. I certainly think there’s reason for many investors to take this view, and I’m cautious on any company with sky-high multiples as well, particularly in this current macro backdrop.
That said, it’s worth noting that Bersey also projects an annual earnings growth rate exceeding 24% to 2028 for Palantir. If the company is able to maintain this growth, future multiples may not look as heated. Thus, as with any stock, holding Palantir here depends on one’s investing time horizon. For those thinking very long-term, perhaps the stock isn’t as overheated as some think. That’s what makes Palantir so interesting to dive into.
Time Horizon Matters
As mentioned, I think the issue of whether Palantir is overvalued or represents a buy at current levels really comes down to one’s time horizon. Palantir’s ascent has clearly been fueled by AI adoption. Thus, for those who see Palantir as a clear pure-play on this trend, and view the runway as much larger than many think right now, perhaps the company’s valuation makes sense.
Im not going to debate that the stock is expensive – it is. It just depends how one views Palantir’s recent earnings and revenue growth strength, and whether this can continue at least for the next three or four years. Right now, the jury remains out on this front, and that’s what makes a market.
While I still think PLTR stock could warrant a buy for certain investors, and this stock may be a cautiously bullish buy for some, I’d wait for a pullback before jumping in. That’s just me. This concludes my PLTR stock outlook.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
