Palantir's stock draws a downgrade over its 'gluttonous valuation'

By Emily Bary

An analyst thinks Palantir will see AI benefits but deems the stock's valuation to be steep on a relative basis and given industry pressures

Monness, Crespi, Hardt & Co. analyst Brian White didn't mince words in describing Palantir Technologies Inc.'s valuation as he downgraded the software stock to sell.

During a period of software-industry "carnage," the momentum shown by Palantir's stock (PLTR) so far this year on top of a strong ascent last year "gives rise to a gluttonous valuation," he wrote. The stock is up roughly 300% since the start of 2023, trouncing the iShares Expanded Tech-Software Sector ETF IGV and the S&P 500 SPX over that span.

Later, he added that Palantir's stock sported "a king's ransom of a valuation" - one that was higher, based on enterprise value to revenue - than that of any other stock in his software coverage area, or even his broader coverage universe.

"As multiples in the space have contracted in recent weeks, Palantir's valuation has expanded," he wrote. "Palantir also trades at a generous premium to the three fastest-growing companies in this group" besides itself.

White noted that Palantir's stock trades at 17.7 times his estimates for calendar 2025 sales, and he expects to see 23% sales growth for Palantir in calendar 2024. By contrast, Snowflake Inc. shares trade at an 8.3x multiple on the same metric, while he anticipates the company will see 34% sales growth this calendar year.

He still thinks Palantir will prove able to capitalize on artificial-intelligence spending, but wrote that he worries about broader challenges for the enterprise software industry as customers get more discerning about their spending.

"In the long run, we believe Palantir is well positioned to benefit from the AI trend and capitalize on volatile geopolitics; however, valuation is extreme, the software complex is under pressure, revenue recognition from government-related contracts has proven lumpy, execution spotty, and we believe the darkest days of this economic quagmire are ahead of us," White wrote.

In lowering his rating from hold, White also established a $20 price target. That's about 22% below the stock's Thursday close of $25.56.

Shares were off roughly 4% in Friday morning trading.

Argus Research analyst Joseph Bonner recently took the opposite view of White, initiating coverage of Palantir shares with a bullish stance. Of the 21 analysts tracked by FactSet who cover Palantir's stock, seven have buy-equivalent ratings, eight have hold ratings, and six have sell-equivalent ratings.

-Emily Bary

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06-21-24 0943ET

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