Palantir Earnings Provide Litmus Test for 140% AI-Fueled Rally
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(Bloomberg) -- Palantir Technologies Inc.’s premium valuation will be put to the test when the data analysis and software company reports results after the market close on Monday.
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After a blistering artificial intelligence-driven rally of more than 140% this year, the bar is high. Wall Street has become increasingly cautious about Palantir, with the average target implying a decline of more than 30% in the next 12 months. At the same time, investors are still wary about AI-linked names, and want to see more tangible results from the nascent technology. Earnings from Amazon.com Inc., Microsoft Corp., Meta Platforms Inc. and Apple Inc. were met with mixed reactions.
“We cannot rationalize why Palantir is the most expensive name in software,” RBC analysts led by Rishi Jaluria wrote in a note last week. The stock trades at more than 100 times future earnings, while Oracle Corp. and Microsoft both trade at less than 30 times. Palantir shares were about 0.6% lower in afternoon trading in New York.
“Absent a substantial beat-and-raise quarter elevating the near-term growth trajectory, valuation seems unsustainable,” Jaluria said. RBC has an underperform rating and $9 price target for Palantir — about 80% lower than the current price.
Bullish investors see it differently, helping to push the stock to a record high last month. The company, which makes just over half of its revenue from government contracts, got a boost from its recent inclusion in the S&P 500, and is now the third-best performer in that benchmark in 2024 — trailing only Vistra Corp. and Nvidia Corp.
Palantir is “one of the few companies that is Gen AI enabled and has actually seen upticks both in the enterprise and government sector,” said Ted Mortonson, managing director at Robert W Baird & Co. “The Street is just missing, quite frankly, how powerful their core AI-based platform is.”
Palantir is expected to report third-quarter adjusted earnings per share of 9 cents, up 29% from a year ago, but a slower pace of growth than in previous quarters, according to data compiled by Bloomberg. Revenue is estimated at about $704 million, up 26% year-over-year.
Investors will be particularly focused on customer additions and sales of AI tools to corporate customers. Wall Street estimates revenue from government clients will grow 23%, to nearly $379 million, while commercial sales are expected to increase by about 32%, to $330 million. Palantir has won multiple new corporate clients this year, including CBS Broadcasting, General Mills Inc. and Aramark Services Inc.