Palantir Technologies (PLTR) faced a significant downgrade to an ‘Underweight’ rating by Morgan Stanley (MS) on Monday, reflecting concerns over its valuation following a 340% surge in stock price throughout 2024. Analyst Sanjit Singh communicated in a client letter that while Palantir has shown remarkable commercial traction and success with its Artificial Intelligence Platform (AIP), the stock’s current price, which closed at $79.89 on Friday, might not offer much further upside potential.
Singh acknowledged the company’s strong performance, particularly highlighting the growth in the government sector and disciplined operating expenses, which have driven up estimates. Palantir’s U.S. commercial division has also seen notable growth over the last 18 months, contributing to the company’s robust execution. Despite these positive developments, Morgan Stanley’s valuation concerns stem from the belief that these achievements have already been reflected in the stock’s price.
The analyst pointed out that Palantir’s 2026 enterprise value-to-cash flow growth multiple stands at 3.4x, which is above consensus expectations. However, Singh expresses skepticism regarding additional gains, given the stock’s performance. He noted potential catalysts like the incoming administration of President-elect Donald Trump, mentioning ties between Vice President-elect J.D. Vance and Palantir co-founder Peter Thiel, which could influence stock performance.
Despite these insights, the market reaction was immediate, with Palantir’s stock dropping $4.55 or 5.70% to $75.35 in Monday’s trading session. This dip comes after a year where the company’s shares have not only soared, gaining 95% in the last three months and 355% year-over-year, but also set a new all-time high closing price of $82.38 on December 24, 2024. With a current market cap of $182 billion and a 52-week range from $16.03 to $84.80, Palantir’s journey has been one of significant highs contrasted against its valuation concerns.
It’s worth noting that Palantir’s current PE ratio of 469.94 underscores the sky-high expectations and valuations within the tech sector, particularly for companies like Palantir that are at the forefront of AI and data analytics. However, this valuation, coupled with Morgan Stanley’s cautious outlook, presents a nuanced scenario for investors evaluating Palantir’s future. While the company’s impressive growth and dominant market position are undeniable, the question of whether this potential is already priced in remains a critical consideration. This uncertainty, amid heightened volatility and lofty expectations, is likely to temper investor enthusiasm.
WallStreetPit does not provide investment advice. All rights reserved.
Leave a Reply