The Stock of Palantir is Downgraded Due to Its "Gluttonous Valuation"

Monness, Crespi, Hardt & Co. analyst Brian White did not hold back in critiquing the valuation of Palantir Technologies Inc. as he downgraded the software stock to a sell.

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Amid what he described as a period of "carnage" in the software industry, White observed that Palantir’s stock (PLTR, -5.05%) had shown significant momentum both this year and last, leading to what he termed a "gluttonous valuation." Since the beginning of 2023, the stock has surged approximately 300%, significantly outperforming both the iShares Expanded Tech-Software Sector ETF (IGV) and the S&P 500 (SPX).

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White further elaborated that Palantir’s valuation was extraordinarily high. Specifically, he noted that its enterprise value to revenue ratio was the highest among all stocks he covers in both the software sector and his broader coverage universe.

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He pointed out that, while multiples in the software space have contracted recently, Palantir’s valuation has continued to grow. He also highlighted that Palantir trades at a premium compared to the three fastest-growing companies in the sector, excluding itself.

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White detailed that Palantir's stock trades at 17.7 times his projected sales for calendar year 2025, and he expects the company to achieve 23% sales growth in 2024. In comparison, Snowflake Inc. trades at an 8.3x multiple with an expected 34% sales growth this year.

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Despite his concerns, White acknowledged that Palantir is well-positioned to benefit from increased spending on artificial intelligence. However, he expressed worries about the broader challenges facing the enterprise software industry, particularly as customers become more selective with their spending.

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"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.

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In conjunction with downgrading the stock from hold to sell, White set a price target of $20, about 22% below the stock’s Thursday closing price of $25.56.

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Following this downgrade, Palantir shares fell roughly 4% in Friday morning trading.

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Contrasting White’s stance, Argus Research analyst Joseph Bonner recently initiated coverage of Palantir with a positive outlook. Among the 21 analysts tracked by FactSet who cover Palantir, seven have buy-equivalent ratings, eight have hold ratings, and six have sell-equivalent ratings.

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