Shares in Palantir Technologies rallied in early 2023. But some analysts are still cautious on the outlook for PLTR stock, with the software maker's government and commercial businesses facing hurdles.
Palantir's fourth-quarter earnings are due Feb. 13 after the market close. Analysts estimate a 3-cent profit, up a penny from a year earlier. Revenue is expected to rise 16% to $502.6 million.
Analysts project about 21% sales growth for the government sector of PLTR stock. Analysts model Q4 commercial revenue growth of roughly 11% for Palantir stock.
"Palantir has made progress expanding its commercial presence; however, we expect the current environment will curtail growth," said Brian White, analyst at Monness, Crespi, Hardt in a report. "In government, closing deals has proven mercurial, leading to lumpy revenue recognition."
Palantir stock has gained 17% in 2023. But PLTR stock is down 46% from a year ago and 67% since a sell-off in software stocks began in November 2021.
"We believe expectations are achievable but remain cautious that one more reset could be coming," Jefferies analyst Brent Thill said in a note to clients Monday.
"Sentiment on the story continues to skew negative with the key debate shifting to whether the commercial business can accelerate without contributions from SPACs after management acknowledged that those investments were a mistake," Thill went on to say. "We think the slowdown in government business likely continues until new deal activity resumes."
PLTR Stock: Looking To Grow Its Businesses
Palantir is one of several software stocks with double-digit gains in early 2023.
"Despite the recent re-rating in shares, incremental estimate risk may not be fully priced in yet — headwinds on the commercial business leaving top-line growth exiting the year in the teens, by our estimates, drives a negative skew on the risk/reward into Q4 results," Morgan Stanley analyst Keith Weiss said in his note to clients.
Palantir garners nearly 60% of revenue from government agencies that use Palantir software for intelligence gathering, counterterrorism and military purposes. Further, PLTR stock aims to grow its commercial business. The software maker is looking to expand into the health care, energy, and manufacturing sectors.
Palantir Chief Operating Officer Shyam Sankar recently spoke with Investor's Business Daily about the enterprise software market.
"I think 2023 is going to be a very interesting year for the competitive landscape in the data industry, in particular because I think a significant global recession is coming if it's not already here," he said.
"And I think there's going to be a big shake up where people are looking for software that can be implemented quickly, that delivers results very quickly and move away from things a little more mimetic."
Palantir's SPAC Strategy
Meanwhile, Mizuho Securities initiated coverage of Palantir stock with a neutral rating on Jan. 18.
"Growth across both its government and commercial businesses has slowed significantly, and an uncertain macro environment makes meaningful near-term reacceleration much more difficult," Mizuho analyst Matthew Broome said in a note.
Some analysts have been critical of PLTR's strategic investments in special purpose acquisition companies, or SPACs, as a way to boost revenue. SPACs raise money in an initial public offering with the purpose of making acquisitions.
In addition, the SPACs sign multiyear contracts to use Palantir software in their core operations.
Also, PLTR stock holds a Relative Strength Rating of 25 out of a best-possible 99, according to IBD Stock Checkup.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
