Following a remarkable 35% surge in November, Palantir Technologies’ (NYSE:PLTR) shares experienced a more than 9% decline recently, resulting in a market cap valuation of $40 billion. This drop, attributed in part to widespread selling at the beginning of the week, was exacerbated by a pessimistic analyst note focusing on a critical Army contract.
William Blair analyst Louie DiPalma specifically highlighted concerns over Palantir’s upcoming renewal negotiation for a four-year, $458 million contract with the U.S. Army. Due to disputes over data ownership, the value of a renewed contract could be substantially lower, as the Army looks to diversify its vendors.
Government contracts constituted 55% of Palantir’s total sales in Q3, and this percentage might decrease if other military and federal agencies seek to reduce their reliance on Palantir as a vendor in the future.
DiPalma maintained his “underperform” rating on PLTR, emphasizing that shares are trading at 125 times future cash flows. He anticipates a compression in Palantir’s multiple over the next 12 months due to competitive pressures for new defense contracts.
Despite bearish analyst notes, Palantir stock, driven by its presence in artificial intelligence (AI)-driven enterprise software, has significantly outperformed the broader markets in 2023, with a year-to-date increase of 185%. The company reported a 17% year-over-year growth in sales to $558 million in Q3, with a net income of $72 million. Palantir’s net income over the last 12 months reached $147 million, making it eligible for inclusion in the S&P 500 Index.
Palantir attributed its revenue growth to U.S. commercial contracts, which grew by 33% to $116 million in Q3. This growth was fueled by increased demand for its artificial intelligence platform (AIP) released in early 2023. The company highlighted deployment across various U.S. industries and the use of its AI-powered software platform, leveraging the latest large language models.
Furthermore, Palantir’s revenue per employee nearly doubled from $299,000 in Q3 of 2019 to $558,000 in Q3 of 2023.
Despite its strong performance in 2023, Palantir stock remains 145% below its all-time highs. It is projected to achieve adjusted earnings of $0.29 per share in 2024, resulting in a forward earnings multiple of 63.5, which is considered steep. Out of 14 analysts tracking PLTR, only two recommend “strong buy,” one recommends “moderate buy,” five recommend “hold,” one recommends “moderate sell,” and five recommend “strong sell.”
The average target price for Palantir stock is $14.65, representing a 20% decline from current levels. RBC Capital holds the lowest price target at $5.00, indicating a potential 73% drop from current levels. The recent NHS contract win was described by RBC as “underwhelming” due to its smaller-than-expected size and being split among multiple vendors.
Featured Image: Megapixl
Author Stephanie Bédard-Châteauneuf 
