Palantir (NYSE:PLTR) shares have rallied since the company announced upbeat first-quarter earnings and touted the unprecedented demand for its new artificial intelligence platform (AIP). While investors cheered the company’s performance and its assurance about staying profitable in the remaining quarters of 2023, Wall Street analysts remain sidelined on the stock due to several concerns, including the slowdown in the data analytics company’s revenue growth rate.
Wall Street Analysts Remain Skeptical
For Palantir, Q1 2023 marked the second consecutive quarter in which the company delivered a positive GAAP profit. While investors are buying into Palantir’s AI growth story, most Wall Street analysts don’t seem convinced about the company’s prospects.
Following the results on May 9, William Blair analyst Louie DiPalma, who maintained a Sell rating on PLTR, noted that the company’s Q2 revenue growth guidance of 12% (at the midpoint of the outlook) marked the slowest growth rate for Palantir as a publicly traded company. He pointed out that revenue growth peaked at 57% in Q1 2020 and has steadily declined due to growing competition, warning that it could slow further if the company is unable to renew vital government contracts.
DiPalma thinks that PLTR shares will trend to the $5 to $6 range over the next year as the valuation multiple adjusts to reflect a more mature growth profile. The analyst cited headwinds related to U.S. government renewals and increased competition for government contracts.
Also, RBC Capital analyst Rishi Jaluria maintained a Sell rating and a price target of $5 following the print. Jaluria stated that the company’s leading indicators do not look encouraging, noting the sequential decline in key indicators like remaining performance obligation (RPO), current RPO, net revenue retention (NRR), and total deal value (TDV). Jaluria also expressed apprehensions about the company’s claim to be an artificial intelligence company, as he sees it as a data processing platform with significant professional services.
Meanwhile, Jefferies analyst Brent Thill increased his price target for PLTR to $10 from $8.50 and maintained a Hold rating. Thill opined that sentiment was very negative going into the Q1 results and better-than-feared performance drove a rally in the stock.
Thill thinks that Palantir’s record free cash flow and positive GAAP operating income reflect the company’s continued commitment to profitability. However, Thill believes that despite upbeat Q1 results and commentary, investors will remain skeptical due to the continued slowdown in business fundamentals.
Is Palantir a Buy, Sell, or Hold?
Wall Street is sidelined on Palantir stock, with a Hold consensus rating based on two Buys, six Holds, and four Sells. The average price target of $9.72 implies nearly 34% downside. PLTR shares have skyrocketed 129% year-to-date.
Conclusion
Most analysts covering Palantir remain concerned about several aspects, including rising competition in the government business. While Wall Street is sidelined on Palantir, the stock has a Very Positive Hedge Fund Confidence Signal as per TipRanks’ Hedge Fund Trading Activity Tool. Hedge Funds increased their holdings in PLTR stock by 1.1 million shares last quarter.
