Palantir (NYSE: PLTR) has experienced substantial growth in 2024, surging over 160% year-to-date. However, there are pressing concerns regarding the software company’s valuation that may threaten this upward trajectory moving forward.
As of Thursday, October 24, PLTR’s share price stood at $43.58, marking a 2.3% rise at the time of this report. The stock has risen more than 18% in the past month.
Issues Surrounding PLTR
Amid its impressive rise, Palantir is facing doubts about its ability to sustain its high stock price.
Currently, the stock is trading at 40 times its revenue, which is deemed excessively high for a business still in its growth stage. This Price-to-Sales (P/S) ratio indicates that Palantir’s market value is 40 times its yearly earnings, echoing the inflated valuations characteristic of the 2022 SaaS bubble, which eventually burst.
Such a lofty valuation implies that anticipated growth has already been integrated into the current stock price, restricting the potential for appreciation for new investors, unless the company experiences exceptional growth.
Indeed, analysts have voiced concerns about this valuation, observing signs of potential exhaustion in the stock’s recent performance, with indicators such as the Relative Strength Index (RSI) suggesting this fatigue.
Additionally, reports from Finbold noted that analyst Jake Ruth expressed that Palantir’s valuation above $40 appears “very expensive,” cautioning that it is unrealistic to expect ongoing multiple expansions indefinitely.
While Palantir has exhibited stock performance similar to other AI-focused companies like Nvidia (NASDAQ: NVDA), its anticipated growth rate of 21-24% for 2024 and 2025 seems less robust compared to the steady 21.4% annual revenue growth Nvidia has sustained over the past five years. This difference raises uncertainties about Palantir’s ability to meet elevated market expectations.
Moreover, Palantir’s addressable market is limited. The average annual revenue per customer within the U.S. commercial sector is around $2.15 million, which restricts its customer base primarily to large corporations. This could hinder future growth and complicate the justification of the company’s high valuation.
Competition is another critical factor, particularly for Palantir’s AI Platform (AIP), which faces rivals like Google Cloud.
Prospects for PLTR Stock Price
The upcoming earnings report slated for November 4 is expected to be a significant determinant for the outlook of Palantir’s stock.
Investment advisor Michael Vodicka stated in an X post on October 24 that strong earnings could potentially drive PLTR towards a $50 target, although the stock needs to secure a position above $45 first.
Despite the valuation concerns surrounding Palantir, some analysts maintain a positive outlook. Daniel Ives from Wedbush adjusted his price target to $45 with an ‘Outperform’ rating, while Mariana Perez of Bank of America (NYSE: BAC) set a target of $50 and issued a ‘Buy’ recommendation.
Image Source: TY Lim / Shutterstock