Palantir is “turning into a bit of a difficult valuation story to sell, but it’s a great company,” said Mark Giarelli of Morningstar Investment Service, who has sell-equivalent rating on the stock. The valuation “causes heartburn, but that’s the story right now.”
Plenty of Wall Street pros and retail investors alike are happy to hang on for now, wary of missing out on further upside. Still, it’s getting hard for them to ignore the increasingly high bar Palantir must meet to justify its performance over the longer term. Damian Reimertz of Bloomberg Intelligence estimates the company would need to generate $60 billion over the next 12 months to trade at a comparable valuation to its peers.
That calculation — based on a comparison of the software companies’ enterprise value-to-sales ratio — is many times higher than the $4 billion in revenues Wall Street expects Palantir to earn in fiscal 2025 or the $5.7 billion analysts forecast for next year.
Valuation is also a sticking point for Gil Luria, managing director and head of technology research at DA Davidson & Co. Luria praised Palantir’s quarterly results and called it “the best story in all of software” in a recent note.
In a broader sign of Wall Street’s unease, more than twice as many analysts assign the stock sell or hold ratings than buy, according to data compiled by Bloomberg. Still, Palantir’s shares have become a must-own for portfolio managers concerned with beating performance benchmarks, said David Wagner of Aptus Capital Advisors, which holds shares of the company.
“There’s a lot of investors that just can’t ignore it,” said Wagner. “They don’t believe in the stock, but they’re tired of it just hurting them on a relative performance standpoint.”
“Definitely Palantir is part of that AI craze, but not everything that goes to a valuation of 200 is a bubble,” said Que Nguyen, chief investment officer of equity strategies at Research Affiliates, referring to Netflix.
“You have to squint your eyes. You kind of have to believe that these audacious growth goals can be achieved,” he said.
While Palantir aced its most recent earnings report, its high valuation could exacerbate a selloff if the company stumbles in the future, said Morningstar’s Giarelli.
“Palantir is trading at such a high multiple relative to everyone else that there’s just so much gravity underneath their stock chart,” he said. “There’s a lot of room below the stock chart for it to reprice in a negative way because it’s had such a stellar run.”
For Mark Malek, chief investment officer at Siebert Financial, valuations remain a concern. Still, Palantir’s potential for growth has kept him holding on to the stock.
“It’s uncomfortable to buy it at these levels, but we’re not afraid to buy when stocks are overvalued,” he said. “Where else are you finding 30% growth rates out there?”
