Title: Predicting Palantir Technologies' Stock Performance in the Next Year
In 2024, Palantir Technologies (PLTR) has been on a roll, with shares skyrocketing a staggering 290% so far. The past month has been particularly sweet for investors, as the stock has surged a whopping 62% since its third-quarter results were released on November 4. Artificial Intelligence (AI) has played a significant role in this red-hot rally, as businesses and governments have rushed to Palantir for help integrating generative AI into their operations.
Despite this impressive performance, Wall Street isn't getting overly optimistic about Palantir's prospects for 2025. Let's dive into the reasons why.
Palantir's Valuation: A Growing Concern
Keeping things simple, analysts are predicting a 43% drop in Palantir stock price, with a one-year price target of $38. Furthermore, a significant 35% of analysts recommend selling the stock. Half of them are sitting on the fence with a "hold" rating, while only 15% think it's a good time to buy.
The reasons for this skepticism revolve around Palantir's valuation: it's currently trading at a whopping 62 times sales. While its forward earnings multiple of 137 suggests an improvement in its bottom line, it's still pretty rich. For perspective, AI pioneer Nvidia, which is growing at a much faster pace, has lower multiples.
Palantir reported a 30% revenue increase in Q3, reaching $726 million. Its adjusted earnings also saw a 43% boost to $0.10 per share. However, Nvidia's revenue soared an impressive 94% year over year to $35.1 billion in its latest quarter, with earnings jumping 103% to $0.81 per share. Given Nvidia's cheaper valuation and better growth, it might be the smarter AI bet at the moment.
Potential Challenges Ahead
While there are reasons to be optimistic about Palantir's future, there are also potential hurdles that could trip it up in 2025.
First up, Palantir's revenue growth rate has been steadily improving throughout 2024, with a 21% increase in Q1, followed by a 27% increase in Q2. This trend continued in Q3 with a 30% revenue jump. Meanwhile, the company's customer count and deal size have been growing, fueling its revenue pipeline.
Second, Palantir's strong unit economics suggest it's making more money from each customer, thanks to expanding contracts. This bodes well for the company's future earnings growth.
Third, the AI software platforms market is expected to see significant growth, with spending forecasted to jump from $27.9 billion in 2023 to $153 billion in 2028. This could create more opportunities for Palantir.
However, there are concerns about Palantir's valuation, revenue instability due to its heavy reliance on government contracts, decelerating growth, and insider selling. These factors make it a riskier investment, especially for conservative investors.
In conclusion, while Palantir's 2024 performance has been exceptional, Wall Street's more conservative outlook for 2025 is based on valid concerns. Whether these concerns outweigh the positives is a decision each investor must make based on their own risk tolerance and investment strategy.
Investors should consider the analysts' predictions of a 43% drop in Palantir's stock price and a one-year price target of $38, as well as the high valuation of 62 times sales, before making any investment decisions. Despite the skepticism around Palantir's valuation, its impressive revenue growth and strong unit economics could make it a viable option for those with a higher risk tolerance.
In light of the potential challenges ahead, such as revenue instability and insider selling, investing in Palantir requires a thorough understanding of its financial performance and market conditions. This would also involve comparing its prospects to those of competing companies, such as AI pioneer Nvidia, which has lower valuation multiples and better growth.
