Palantir joins the S&P 500 today. Why an analyst is hitting pause on its stock.

By Emily Bary

Palantir's stock has outperformed the S&P 500 by a wide margin in recent years, but Raymond James has concerns about the stock's valuation

Monday marks a milestone day for Palantir Technologies Inc. shares, which have joined the S&P 500.

But that's part of the reason Raymond James analyst Brian Gesuale is moving to the sidelines on the software and artificial-intelligence stock. He notes that Palantir shares (PLTR) rose 23% in the past 14 days, with most of that coming after S&P Dow Jones Indices announced Palantir as an upcoming entry to the index.

That "[leaves] significant positive estimate revisions as the lone catalyst from here," Gesuale wrote.

He lowered his rating on Palantir shares to market perform from outperform, highlighting their strong performance over longer spans as well. For instance, the stock is up about 120% so far this year and it's risen 400% over a two-year span. Palantir's stock has vastly outperformed the S&P 500 SPX over both horizons.

At the same time, Palantir's "has expanded [about] fivefold making it the richest software name" among peers, Gesuale wrote. The stock is trading at 26.1 times estimated fiscal 2025 sales.

In Gesuale's view, "shares need to consolidate stellar gains over the last couple of years and grow into [their] rich valuation." As it stands, that valuation leaves "no room for error," he added.

He remains a fan of the business otherwise, noting that he's "enthusiastic about Palantir's longer term positioning in AI." Palantir has seen an acceleration in its U.S. commercial revenues thanks to the company's Artificial Intelligence Platform, better known as AI. The acceleration trend could persist, according to Gesuale.

With his downgrade, the analysts tracked by FactSet who cover Palantir are now evenly split on the stock. Eight have buy-equivalent ratings, eight have neutral-equivalent ratings and eight have sell-grade ratings. The stock has been a polarizing one lately, with bulls cheering the AI momentum but bears largely skeptical of Palantir's valuation.

The average price target on Palantir shares is $27.18, about 27% below current levels.

Read: Can Palantir's stock hit $50? One analyst cheers that new bull case.

-Emily Bary

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09-23-24 0829ET

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