The Stock of Palantir Could Fall 20% Amid an 'unsustainable' Valuation, a New Bear Warns

The debate surrounding Palantir Technologies Inc. shares extends into the new year, with a notable contingent of bearish Wall Street analysts covering Palantir (PLTR, -2.18%). Joining this skeptical camp is Jefferies analyst Brent Thill, contributing to the ongoing controversy.

‍

Despite Palantir's stock emerging as the top performer in 2023 among the names tracked by Thill, he expresses doubt regarding its ability to sustain this momentum. Consequently, he downgraded Palantir from a hold to an underperform rating. Thill acknowledges the company's long-term advantage in AI technology but raises concerns about the stock's surge to unsustainable valuation levels driven primarily by AI enthusiasm and retail trading momentum, without a clear monetization strategy.

‍

In his recent note to clients, Thill emphasizes his skepticism about Palantir's AI Platform (AIP), despite Wall Street's enthusiasm. He questions the platform's potential to significantly impact the company's financials in the near term. Thill contends that Palantir must explore alternative methods to fuel commercial growth acceleration beyond relying on AI euphoria.

‍

Thill admits to underestimating the severity of the slowdown in Palantir's commercial and government businesses. He expresses worry about the prolonged demand recovery, anticipating continued impacts on growth rates throughout 2024. With the government business decelerating and an absence of updates on the recovery timeline, there is heightened pressure on Palantir's commercial business segment to drive overall growth. Thill perceives this as a risk, emphasizing that the company has yet to demonstrate sufficient positive data points to validate its execution in its commercial go-to-market strategy.

‍

Additionally, Thill points to the challenge of forecasting trends, particularly in the opaque government sector, where it is difficult to ascertain ongoing developments. Following Thill's downgrade, a review of FactSet-tracked analysts reveals that eight out of 19 analysts covering Palantir's stock adopt a bearish stance, while five are bullish, and six remain neutral. Thill slashes his price target from $18 to $13, positioning the new target 20% below Thursday's closing level.

‍

The repercussions of Thill's downgrade are immediately evident, with shares plummeting over 4% in Thursday's premarket trading session. The evolving situation underscores the ongoing volatility and uncertainty surrounding Palantir's future trajectory in the stock market. Investors and analysts alike will continue to monitor the company's strategic moves and financial performance in the coming months as the controversy over its shares persists.