Analysts at Monness, Crespi, and Hardt issued a massive warning to investors regarding Palantir stock ahead of the software maker’s earnings report next week.
Specifically, analysts warned the company's shares are trading at “an absurd valuation” fueled by a “19-month genAI propaganda cycle.”
“Based on our estimates, Palantir garners the richest valuation in our enterprise software group based on EV/revenue, while also claiming the top spot in our coverage universe at large,” they noted.
“Given the exorbitant number of shares outstanding, we believe it will take several years for Palantir to grow into its current valuation.”
While Monness analysts see Palantir Technologies Inc (NYSE:PLTR) as well-positioned to benefit from the AI trend and capitalize on volatile geopolitics in the long run, they consider the current valuation to be extreme.
The brokerage firm points out several factors driving its bearish thesis, such as the pressured software sector, inconsistent revenue recognition from government-related contracts, and spotty execution. Notably, analysts believe “the darkest days of this economic quagmire are ahead of us.”
With respect to the upcoming earnings report, Monnes expects Palantir to meet their 2Q24 revenue estimate of $665.9 million and EPS forecast of $0.09, slightly above consensus estimates.
Year-over-year revenue growth is expected to accelerate to 25% in 2Q24 from 21% in 1Q24 and 13% in 2Q23.
They forecast an operating profit of $240.4 million, representing a 36.1% margin, up from 35.7% in 1Q24 and 25.3% in 2Q23.
Government revenue is projected at $351.8 million and commercial sales at $314.1 million, with government segment growth accelerating to 17% in 2Q24 and commercial segment growth to 36%.
“Palantir has experienced strong trends within its U.S. commercial business in recent quarters; however, this market is susceptible to the vicissitudes of the economy,” analysts added.
Palantir stock rose more than 51% in 2024, outperforming the broader market.