The Sharp Decline in Palantir's Stock Just Prompted One Bear to Change His Mind

Shares of Palantir Technologies Inc. have experienced a sharp decline in recent weeks, prompting a notable shift in stance from a former skeptic.

‍

William Blair analyst Louie DiPalma upgraded Palantir’s stock from "underperform" to "market perform" on Wednesday following a roughly 30% drop over the past three weeks. This shift came as the stock climbed approximately 3% in premarket trading.

‍

Despite his upgrade, DiPalma remains cautious about Palantir’s valuation, which he describes as "frothy." The company is currently valued at approximately 100 times its projected free cash flow for 2026, down from 125 times before the recent selloff. While he believes this multiple could shrink further if Palantir’s revenue growth slows significantly, his view on the company’s valuation has evolved.

‍

“One of our biggest pushbacks on Palantir has been its outlier premium valuation,” DiPalma wrote. However, given the market’s enthusiasm for artificial intelligence (AI) companies—highlighted by OpenAI’s recent valuation exceeding $300 billion—he acknowledges that investors may continue to assign Palantir an "AI premium." This suggests the market could maintain Palantir’s elevated valuation despite broader concerns.

‍

DiPalma also highlighted several positive developments supporting his revised outlook. Palantir’s robust AI pipeline is one key factor, and he believes the company’s bookings last quarter were weighted toward the later part of the period. This could set the stage for stronger first-quarter results, which is an encouraging sign for the company’s near-term performance.

‍

Additionally, Palantir’s government business appears more resilient than DiPalma previously assumed. The company has demonstrated impressive operating leverage by significantly increasing revenue while keeping headcount growth minimal. From 2022 to 2024, Palantir’s revenue rose by 50%, but its employee count grew by just 3%, showcasing efficient resource management.

‍

Although DiPalma expects Palantir to miss its original 2025 revenue target of $4.5 billion, announced in August 2022, he is impressed by the company’s margin expansion. He noted that Palantir’s ability to leverage its brand recognition has been crucial in attracting new customers, which further supports its financial performance despite falling short of initial revenue projections.

‍

While Palantir’s stock remains well below its peak, it has surged 255% over the past year. DiPalma acknowledged that if market sentiment shifts back toward a "risk-on" mode, the stock could potentially reclaim its previous highs. However, he remains cautious, predicting that Palantir’s shares will likely trade within a narrow range over the next year, accompanied by elevated volatility due to the competing positive and negative factors at play.

‍

DiPalma’s upgraded stance reflects a more balanced perspective on Palantir’s future. While concerns about valuation and the potential for slowing revenue growth persist, he recognizes the company’s strengths in AI innovation, operational efficiency, and its entrenched government business.

‍

These factors, combined with the broader market’s enthusiasm for AI-related stocks, have led him to take a more neutral position on Palantir’s prospects moving forward.

‍