Palantir Technologies shares edged lower in early trading Monday after a top Wall Street analyst expressed caution about the stock’s prospects for the year.
Palantir (PLTR) The company added about $150 billion to its market value last year, outperforming in data analytics and artificial intelligence technology, as investors bet on the profit potential of government contracts and its inclusion in the S&P 500 in late September.
Earlier this fall, the group raised its full-year revenue forecast for the third time this year, partly justifying investor sentiment due in part to big gains in its non-military business.
Revenue from Palantir’s U.S. operations rose 44% to $499 million in the three months to October, with the bulk coming from its government-focused business.
Commercial revenue grew at an even faster pace to $179 million, including testing and adapting artificial intelligence systems through the AIP Logic platform and providing “boot camps” for companies expanding new technologies into their business processes.
SOPA Photos/Getty Images
“Frankly, Palantir has become one of the few options available to executive management teams and decision makers looking to quickly move their AI initiatives into real production environments,” said Sanjit Singh, an analyst at Morgan Stanley. One of the partners.
Palantir valuation concerns
However, Singer believes that while the bank’s “positively revised assessment of Palantir’s position in the generative AI cycle is well reflected in the stock,” he remains cautious about its near-term prospects.
“While we acknowledge this positive change and are looking to be more constructive on the stock, the lack of visibility of significant estimate revisions has resulted in Palantir trading well ahead of the company’s performance,” Singer and his team wrote. Intrinsic value does not justify a rating upgrade.
Related: Analyst reveals 2025 AI stock picks, including Palantir
The analyst, who began covering the stock this year, set a price target of $60 per share and gave the Denver-based group an “underweight” rating.
Singer believes that Palantir’s astonishing 340% gain last year was “almost entirely driven by multiple expansions,” particularly among value investors assigned to the stock when compared to sales forecasts for the next 12 months.
Palantir said it expects revenue in 2024 to be between US$2.805 billion and US$2.809 billion, an 8% increase from its previous forecast, with operating income of approximately US$1.055 billion.
Revenue growth lags cash flow
Singh pointed out that Palantir’s free cash flow growth this year is expected to be around 41%, “but this is mainly due to expense discipline rather than revenue growth, because revenue in 2025 is only expected to be 10% higher than the beginning of the year,” due to management’s upcoming announcement. In a sign of the coming investment cycle, further expansion looks modest.
RELATED: Analysts sound alarm on Palantir stock through 2025
He also noted that Palantir’s fast-growing commercial business (“where much of the AI story is expected to play a role”) may contribute less to its 2025 sales prospects than its traditional government business.
More artificial intelligence stocks:
- Top analysts revisit Micron Technology stock price targets ahead of first-quarter earnings
- Analysts adjust Ciena stock price target after outlook on artificial intelligence
- Cathie Wood buys $30M in low-profile AI stock
“Business momentum now appears to be stabilizing rather than moving higher, 13 out of 23 [key performance indicators] The Q3 decline comes after showing the best change rate improvement in the previous quarter,” Singer and his team wrote.
Palantir shares fell 1.7% in pre-market trading, opening at $78.54 per share.
Related: Veteran money manager issues dire warning for S&P 500 in 2025
