With Wall Street’s bearish stance before Palantir’s Q1 earnings, will this drive a surge or a decline in the stock price?
- Analysts anticipate Palantir’s Q1 2024 revenue to grow by 17.61% year-over-year, reaching $617.69 million, with EPS expected to rise by 52.24% compared to the previous year.
- The company’s focus on showcasing its Artificial Intelligence Platform (AIP) through demo workshops has led to significant revenue growth, exceeding $1 billion over the last twelve months.
- Despite optimism surrounding Palantir’s AI potential, the consensus among analysts remains predominantly bearish, with concerns raised about the company’s valuation and differentiation in the generative AI space.
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Palantir’s Earnings Preview
Analysts anticipate Palantir’s revenue to increase by 17.61% year-over-year in Q1 2024, reaching $617.69 million, while the EPS consensus estimate stands at $0.08, reflecting a 52.24% growth compared to the previous year.
During the previous earnings call, Palantir emphasized the accelerating momentum of AIP adoption, particularly within the US commercial sector, where revenue saw a remarkable 70% year-over-year growth in Q4 2023. Palantir’s proactive efforts to showcase AIP’s capabilities through workshops and customer conferences have resulted in a significant uptick in new customer acquisitions and expansions.
Palantir’s Artificial Intelligence Platform (AIP) is the core of the bull thesis
Palantir’s Artificial Intelligence Platform (AIP) has gained traction through demo workshops, with over 560 sessions conducted across 465 organizations.
Each successful workshop yields approximately $1 million in revenue. The company’s strategy of showcasing AIP’s capabilities through these workshops has resulted in significant revenue growth, surpassing $1 billion over the last twelve months. The success of the AIP workshops indicates their potential to further drive adoption and revenue growth.
Wedbush analyst Dan Ives believes that Palantir is poised to become a major player in the AI revolution, citing its extensive partner ecosystem. For enterprise CIOs seeking an AI platform, Ives suggests that Palantir should be among their top considerations.
$PLTR "If you're an enterprise CIO looking for an AI platform, Palantir is potentially the first call."
– Analyst Dan Ives on CNBC 9 months ago pic.twitter.com/6oHTCGOQAo
— Palantir Daily (@DailyPalantir) May 2, 2024
Palantir reports a key quarter after the bell as we expect another solid quarter with upside driven by US commercial strength. The big Street focus will be hearing about AIP customer conversion, US commercial strength momentum, and the trajectory of larger deals in the pipeline🏆
— Dan Ives (@DivesTech) May 6, 2024
What Wall Street is saying
Despite some market participants’ optimism about Palantir’s AI potential, the consensus remains predominantly bearish on the stock. Out of thirteen ratings given in the last twelve months, six are sell recommendations, five are hold, and only two are buy.
Among the bullish voices is Bank of America analyst Mariana Perez Mora, who raised the firm’s price target on Palantir to $28 from $24 and maintains a Buy rating on the shares. The increased optimism stems from Palantir securing the prime contractor position on the Army’s Tactical Intelligence Targeting Access Node (TITAN) ground station system contract. Perez Mora sees this as a sign of the Department of Defense “embracing change” and views the news as ushering in “a new era of procurement.”
Among the more neutral perspectives is Mizuho, which, despite maintaining a neutral rating on Palantir, raised the firm’s price target to $21 from $18, citing the Titan program contract extension. Mizuho believes in an improvement in the execution of AI assembly but cautions that further multiple expansion may be challenging, hence adopting a more cautious stance.
Similarly, Citi also maintains a Neutral recommendation on Palantir with a target price of $20 per share. Regarding the Titan renewal contract, Citi believes that the exact breakout and ramp for the contract remain uncertain, and it considers the recent spike in share price around this news as overdone, especially with “valuation now eclipsing MongoDB, Snowflake, Datadog.”
One of the main critics of the Palantir investment thesis is Rishi Jaluria, an analyst at RBC Capital. According to him, despite Palantir’s claims of being a leader in generative AI, conversations with industry insiders, including IT executives and current/former Palantir employees, suggest otherwise. Jaluria argues that Palantir’s offerings in this space lack true differentiation and fail to add significant value compared to other players like OpenAI and Meta. He suggests that while Palantir’s technology has merits, it doesn’t stand out in the realm of generative AI as the company portrays it. Additionally, Jaluria believes that the valuation is too high.
“The stock is the most expensive in all of software, largely due to retail investment interest and AI hype. However, I don’t believe this warrants such a premium multiple.”
The Bottom Line
Wall Street’s bearish consensus suggests that Palantir’s upcoming earnings announcement will likely trigger a significant market reaction, with either a strong uptick or a substantial drop in share price.
The potentially stretched valuation, trading at a 90x price-to-earnings ratio, reflects the market’s high expectations for growth and more optimistic guidance surrounding developments in AI. Even if Palantir manages to achieve its forecasted annual EPS growth of 31%, it would still result in a P/E ratio of 68x.
However, when considering Palantir’s share price in relation to its earnings per share (Price/Earnings ratio) and expected growth, the company trades at a forward PEG ratio of 1.55x. This figure is 15% below the industry average, indicating an attractive multiple for a company with Palantir’s growth prospects.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
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