Palantir’s (NYSE:PLTR) Q3 report was strong on all fronts and offered another retort to all those who have claimed the big data company has just been riding AI hype.
On the back of the print, Jefferies analyst Brent Thill admits that he “underestimated the momentum that PLTR was able to garner after the launch of Artificial Intelligence Platform (AIP) boot camps.”
Thill also concedes that he did not take into account the company’s ability to deliver four consecutive quarters of accelerating growth, both for the top-line and RPO (remaining performance obligations), especially considering the relatively easier comps following three consecutive quarters of “less-than-stellar” readouts between Q1 and Q3 last year.
“We give credit where credit is due,” Thill goes on to say, “and delivering 30% y/y revenue growth (on a 17% comp) and 59% y/y RPO growth (on a -21% comp) is commendable.”
However, for those expecting the outperformance to continue, Thill thinks that is unlikely. “PLTR will no longer have easy comps heading into Q4 and CY25, and we believe it will be more difficult to accelerate growth from here,” the analyst further said.
But the lack of accelerating growth moving forward is not the only issue. As Palantir has ridden the AI wave to year-to-date gains of a huge 217%, the stock’s valuation has become increasingly difficult to justify. Now, at 38 times CY25E revenue, Palantir is the “most expensive software name” out there, trading at more than double the multiple of CrowdStrike, which holds the next highest valuation.
Meanwhile, Palantir’s CY25 revenue estimates have increased by 9% year-to-date, yet its NTM (next-twelve-month) revenue multiple has surged by 176% in the same period. As such, the stock stands out as the only one boasting triple-digit multiple expansion, roughly four times that of the next top-performing peer, Oracle.
Moreover, insider selling has picked up as shares have surged. Through 10b5-1 plans, Palantir’s CEO has sold over $1.2 billion worth of stock in the past three months, equating to roughly 14% of his holdings.
The heavy retail ownership – over 50% of Palantir’s shares – is another potential risk. “This shareholder structure is a double-edged sword in that while a bigger retail base could further fuel multiple expansion on no news/change to fundamentals, these dynamics could also cause very quick and significant multiple compression should the stock go out of favor,” Thill explained.
The upshot of all the above is that on account of an “unsustainable valuation premium,” Thill has now downgraded his rating on PLTR from Hold (i.e. Neutral) to Underperform (i.e. Sell). Thill’s $28 price target factors in a 12-month drop of ~50%. (To watch Thill’s track record, click here)
4 others on the Street join the Jefferies analyst in the bear camp and with an additional 6 Holds and 3 Buys, the stock claims a Hold consensus rating. Most might as well have said Sell, however, given the $34.30 average price target implies the stock is overvalued by ~39%. (See PLTR stock forecast)
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