Palantir Technologies (PLTR) is an artificial intelligence (AI)-powered tech stock that has captured Wall Street's imagination in 2024. With a market cap of nearly $150 billion, Palantir stock has returned 280% to shareholders year-to-date. The company went public in September 2020, and has since generated returns of almost 600%.
Palantir builds and deploys software platforms for governments and companies in the U.S. and other international markets. Its products include:
- Palantir Gotham: A platform allowing users to identify hidden patterns within deep data sets. It helps operators plan and execute real-world responses to threats identified within the platform.
- Palantir Foundry: A platform that disrupts how enterprises operate as it creates a central operating system for their data, which users can integrate and analyze in a single place.
Let’s see if PLTR stock is overvalued after its breakout rally this year, or if it can continue moving higher over the next 12 months.
A Strong Performance in Q3
Palantir shares jumped 20% following its solid Q3 earnings results, in which it reported revenue of $726 million and adjusted earnings of $0.10 per share. Comparatively, Wall Street expected revenue of $701 million and earnings of $0.09 per share in the September quarter.
While sales rose 30%, Palantir's net income more than doubled year over year. The company’s co-founder and CEO, Alex Karp, attributed its revenue beat in Q3 to “unrelenting AI demand that won’t slow down,” emphasizing the strong adoption of AI solutions from the U.S. government base.
Palantir projected revenue between $767 million and $771 million in Q4, comfortably surpassing consensus estimates of $741.4 million. It expects total sales to grow by 26% year over year to $2.81 billion, beating estimates of $2.76 billion.
Management targets the U.S. commercial segment to generate $687 million in sales in 2024, up 24% from the year-ago period. Notably, international commercial sales were down 7% from Q2 due to lower demand from Europe and a fall in revenue from a government-sponsored entity in the Middle East.
Is PLTR Stock Overvalued?
Palantir’s outsized gains in 2024 can be tied to an improving bottom line. In the last 12 months, its net income has risen to $476.6 million, up from $209.8 million. Comparatively, it reported cumulative net losses of over $2 billion between 2020 and 2022.
The AI software company has reported a positive free cash flow since 2021. Its free cash flow in the last 12 months has totaled $980.3 million, up from $321.2 million in 2019. Analysts expect its free cash flow to rise to $1.16 billion in 2025 and $1.5 billion in 2026. Further, analysts expect earnings to expand from $0.25 in 2024 to $0.6 in 2026. So, priced at 110x forward earnings, PLTR stock trades at a lofty valuation.
Despite its expensive multiples, Bank of America just reiterated its “Buy” rating for PLTR stock, and raised its price target to a new Street-high of $75 from $55. BofA explained Palantir’s growth in U.S. markets and a widening competitive moat make it a top investment choice as it now serves a wide range of clients across sectors.
The investment bank projects the Government business to grow by 29% annually in the next three years, up from 24%, and said that Palantir is well-positioned to digitize business processes as companies turn to AI and automation to boost profitability. Due to rising demand, BofA expects Palantir’s Commercial business to grow by 34% annually over the next three years, up from an earlier forecast of 32%.
BofA's bullish opinion is a rare one for Palantir. Out of the 15 analysts covering PLTR stock, only two recommend a “strong buy,” while six recommend a “hold,” and seven suggest a “moderate sell” or “strong sell.” The average target price for the tech stock is $33.78, indicating a downside of almost 49% from current levels. BofA's new $75 target implies expected upside of 14.4%.
