Palantir Technologies (NYSE:PLTR) stock caught a bid in May and June, but before jumping in, prospective investors should consider letting the share price come down somewhat. I am bullish on Palantir Technologies stock as a long-term holding, but there are valuation concerns, and the last thing any trader should be is a price chaser.
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Headquartered in Colorado, Palantir Technologies provides a range of security products to government entities as well as private businesses. However, like practically every other tech-focused company nowadays, Palantir seeks to present itself as an artificial intelligence (AI) technology provider.
I wouldn’t call Palantir Technologies a bandwagon-jumper, but surely it’s not a coincidence that Palantir has mentioned AI/machine learning in many of its recent press releases. Thus, investors will get some exposure to the AI market through PLTR stock. Yet, the market’s AI hype may have prompted an unsustainable rally, so consider relaxing and letting the hype cool down before you hit that “Buy” button.
Palantir Technologies Pivots to AI and Never Looks Back
Don’t get the wrong idea here. Palantir Technologies’ AI-related plans could be a game-changer. Of particular interest is Palantir’s Artificial Intelligence Platform (AIP) product, which CEO Alex Karp said that it “will allow customers to leverage the power of our existing machine learning technologies alongside… large language models, directly in our existing platforms.”
How AIP will impact Palantir Technologies’ future earnings results remains to be seen. What we do know for certain right now, however, is that Palantir has AI-connected arrangements with The U.S. Special Operations Command (USSOCOM), consulting and technical services provider Jacobs Engineering (NYSE:J), and Panasonic (OTC:PCRFY), among others.
Additionally, Karp went on the offensive against AI technologies’ critics in a recent interview, declaring, “There is already an A.I. arms race, it’s just we’re ahead, [and] it’s not like if we slow down, the AI race will stop.” Furthermore, in Karp’s view, it’s only a question of “Do we stay ahead or do we cede the lead,” and clearly, the Palantir Technologies CEO wants his company to establish and maintain a leadership position in AI.
Palantir Technologies Stock Rose Too Quickly
Cautious investors might wonder why PLTR stock more than doubled in price from May to June. That seems excessive, and I doubt that this rally was solely based on Palantir Technologies’ fundamentals.
After all, Palantir Technologies is barely profitable on an EPS basis. This has been true for several consecutive quarters, actually. So, unless Palantir’s AI pivot prompts a major increase in per-share earnings, it’s going to be difficult to justify the recent 2x stock price move.
As we’ll discover in a moment, analysts aren’t expecting much from PLTR stock over the next 12 months. Is it possible that the AI hype has already been priced in? Analysts with Raymond James might believe so, as they recently downgraded Palantir Technologies from Strong Buy to Outperform.
While the Raymond James analysts are “enthusiastic about Palantir’s positioning in AI,” they caution (and I concur) that “the recent run in shares coupled with a premium valuation make finding a catalyst more challenging in the near term.”
Thus, the Raymond James analysts observed PLTR stock’s “premium” valuation, and I’ll add that the numbers seem to support this concern. In particular, Palantir Technologies’ trailing 12-month (TTM) price-to-sales (P/S) ratio of 16.3x is far above the sector median P/S ratio of 2.89x, while the company’s TTM price-to-book (P/B) ratio of 12.1x drastically exceeds the sector median P/B ratio of 3.13x.
Is PLTR Stock a Buy, According to Analysts?
Turning to Wall Street, PLTR stock comes in as a Hold based on two Buys, six Holds, and four Sell ratings. The average Palantir Technologies stock price target is $11.13, implying 28.3% downside potential.
If you’re wondering which analyst you should follow if you want to buy and sell PLTR stock, the most profitable analyst covering the stock (on a one-year timeframe) is Mariana Perez of Bank of America (NYSE:BAC) Securities, with an average return of 71.1% per rating and an 86% success rate. Click on the image below to learn more.
Conclusion: Should You Consider Palantir Technologies Stock?
Palantir Technologies remains a promising technology business with an unapologetic AI angle. If you’re on board with that, it’s fine to plan a strategy for Palantir stock.
However, that strategy should involve patience rather than price-chasing. So, I like the idea of waiting for PLTR stock to decline to $12 before considering a share purchase. That way, you’d get some cybersecurity and AI market exposure, but at a price that’s more reasonable.
