Palantir Technologies’ stock (PLTR) plunged over 6% during Friday’s premarket trading after Jefferies downgraded the data analytics company to “underperform” from “hold”, warning investors that the recent rally is unsustainable. This latest analyst downgrade adds to building skepticism around Palantir’s lofty $23 billion valuation amidst a turbulent market.
Jefferies Analyst Cites “Overhype” Around Palantir’s AI Capabilities
On Thursday, Jefferies analyst Brent Thill cut his rating on Palantir shares to underperform from hold, while slashing his price target to $7 from $11. Thill warned that Wall Street’s hype around Palantir’s AI capabilities is overblown and that the stock could fall 20% from current levels.
In his downgrade note, Thill stated:
“PLTR continues to sell the dream that AI will drive material upside from new initiatives like Apollo. However, growth has sharply decelerated in recent quarters as large deals have dried up, and we do not see a path for PLTR to drive durable growth outside of government.”
He argued that there is little evidence to support “lofty expectations” that Palantir will be a leader in enterprise AI, considering its lack of key AI assets.
Other analysts echoed Thill’s skepticism. Morningstar analyst Dan Romanoff commented that Palantir’s stock looks overvalued trading at 25 times expected sales, well above comparable software stocks.
Schaeffers Research analyst Bernie Horn also stated: “Don’t buy the hype on Palantir’s AI advantage.” He noted the stock’s questionable valuation metrics, with Palantir trading at 25 times sales compared to a software stock average of just 5 times.
Palantir Stock Plummets To Multi-Month Lows
In early market action on Friday, Palantir shares plunged over 6% to $5.97 – falling to lows not seen since July 2022. The stock has now shed nearly 18% over the past month amidst the recent tech rout.
| Date | PLTR Closing Price | % Change |
|---|---|---|
| Dec 30, 2022 | $6.42 | — |
| Jan 3, 2023 | $5.77 | -10.1% |
| Jan 4, 2023 | $6.05 | +4.9% |
| Jan 5, 2023 | $5.97* | -1.3% |
*Price as of 10:05am EST
Palantir has faced heavy selling pressure after reporting underwhelming Q3 results in November, with revenue growth slowing to just 22%. Investor concerns are mounting over the lack of progress in the company’s efforts to expand within the commercial sector.
Year-to-date, Palantir stock has plunged over 47% compared to a roughly 21% decline in the S&P 500 index.
Growth Prospects In Doubt As Palantir Struggles For Big Deals
Despite scoring some high-profile contracts in 2022, Palantir has faced challenges converting its government-centric business model towards more commercial and enterprise customers.
During the Q3 earnings call, CEO Alex Karp admitted that the sales cycle for large deals “continues to be lumpy” and stated that he does not expect significant near-term contribution from the Apollo for business launch.
Goldman Sachs analyst Gabriela Borges also noted a deceleration in large deal contribution over the past four quarters. She commented: “The performance of large deals will be important to monitor going forward”.
This lack of visibility on big-ticket contracts raises doubts that Palantir can achieve its target 30% annual revenue growth. The company may continue relying heavily on government clients, which comprised 61% of Q3 sales.
Outlook: Volatility To Remain High Amid Economic Uncertainty
With Wall Street divided over Palantir’s prospects, expect PLTR shares to remain volatile in the near term. Though the data mining platform continues gaining traction across healthcare, energy, and manufacturing sectors, turning these customer wins into meaningful growth could take time.
If signs emerge that Palantir is indeed struggling to scale Apollo commercial adoption or land major deals, more downgrades could pressure the stock lower.
However, some analysts remain long-term bulls. Morgan Stanley’s Keith Weiss sees a potential $11 bull case if Palantir can execute on its software ambitions. Plus, insiders like CEO Karp and co-founder Peter Thiel made significant stock purchases last quarter.
As Palantir aims to prove its future in AI and enterprise software, investors should watch for inflection points in commercial traction and large contract momentum over the coming year. Absent real fundamental improvements, today’s lofty valuation leaves the stock prone to more downside risk.
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