Despite the ongoing surge in artificial intelligence (AI) stocks, with industry giants like Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD) already experiencing over 20% growth in 2024, not all AI companies are receiving unanimous approval on Wall Street. Palantir Technologies (NASDAQ:PLTR), a software-as-a-service firm, has encountered skepticism, as a recent bearish analyst report suggests a potential decline of over a quarter of its value within the next 12 months.

Palantir, founded in 2003 with Peter Thiel among its founders, specializes in big data analytics and fusion platforms for government, defense, and commercial clients. Its core platform, Foundry, aids users in integrating, analyzing, and visualizing diverse data sets for various security activities. Headquartered in Denver, Palantir has a global presence.

With a current market capitalization of $36.4 billion, Palantir’s stock has witnessed an impressive 126% rally in the past year.

Following this significant surge, Palantir’s stock is now trading at relatively high valuations, with shares priced at 67.7 times forward earnings, 16.4 times forward sales, and 10.9 times book value. These metrics surpass median readings for tech sector stocks, indicating a perceived overvaluation of PLTR.

Palantir’s latest earnings report for the third quarter exceeded estimates, reporting a 17% increase in revenues to $558 million, with commercial revenue growing by 23% to $251 million. Earnings per share (EPS) for the quarter rose from $0.01 to $0.07 compared to the previous year.

Despite a mixed earnings record over the past five quarters, Palantir has seen positive trends, with net cash from operating activities rising by 183.5% to $411 million, and free cash flow improving to $141 million. The free cash flow margin expanded to account for 25% of sales.

However, analysts express concern over the uncertainty surrounding government contracts, particularly with the U.S. Army and the UK’s NHS. Additionally, CEO Alex Karp’s statement that the company lacks a monetization strategy, focusing instead on gaining market share in the AI industry, has raised apprehensions. Intense competition in the AI space from tech giants like Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and Google (NASDAQ:GOOGL) adds to the challenges for Palantir.

In a recent note, Deutsche Bank raised its price target on PLTR to $12, indicating an anticipated downside of more than 26% from current levels, while maintaining a “Sell” rating. The consensus among analysts is only slightly less bearish, with an overall rating of “Hold” for the stock and a mean target price of $14.35. This suggests an expected downside of about 12% from current levels, with a low target price set at $5.00.

Out of 14 analysts covering PLTR stock, 2 rate it as a “Strong Buy,” 1 as a “Moderate Buy,” 4 as a “Hold,” 2 as a “Moderate Sell,” and 5 as a “Strong Sell.”

Featured Image: Megapixl

Please See Disclaimer