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Palantir Technologies (NYSE: PLTR) has witnessed an impressive rise, with its stock price soaring by 110% over the past year. This notable increase can largely be attributed to the surging interest in its artificial intelligence (AI) solutions. However, as the stock has already climbed significantly, analysts on Wall Street seem less optimistic about its prospects for further gains in the near future.
The current consensus among analysts places Palantir's 12-month price target at around $28, suggesting a potential decline of approximately 11% from where it stands today. A considerable portion of these analysts express caution, with about a third recommending to sell, 38% backing it as a buy, and the remainder suggesting a hold. This split perspective raises questions: Should investors consider cashing out their profits, or is Palantir poised to maintain its momentum for additional growth in the forthcoming year?
Central to the debate is Palantir's valuation, which appears to be a significant factor influencing investor sentiment. Currently, the company's price-to-sales ratio sits at a staggering 29, a figure that far exceeds the technology sector's average of 7.7. Furthermore, its trailing price-to-earnings ratio is also lofty, at 178, while the forward earnings multiple stands at 86. Despite these high multiples indicating a steep valuation, there are signs of promising growth ahead.
In its latest earnings report, Palantir recorded a 27% year-over-year revenue increase, generating $678 million. This is a notable improvement from the 21% growth reported in the first quarter and suggests that the company is well-positioned to exceed its previous full-year revenue increase of 17%, which amounted to $2.2 billion. Looking forward, Palantir anticipates revenue of nearly $2.75 billion for 2024, marking a 25% increase from the prior year.
Moreover, analysts predict a robust earnings growth of 44% in 2024, expecting earnings per share to reach $0.36. This expectation has recently been bolstered by upward revisions from analysts. Intriguingly, however, after this projected growth, analysts forecast a deceleration in 2025 and 2026, although recent trends suggest that the company's growth may well outpace these estimates.
Anecdotal evidence of Palantir's robust growth can be found in its remaining performance obligations (RPO), which saw a 41% year-over-year increase, reaching $1.37 billion in Q2. RPO represents the total value of contracts with customers, serving as a barometer for future revenue potential. Even more compelling is the remaining deal value (RDV), which hit $4.3 billion—up 26% from the previous year—indicating a solid base for revenue generation going forward.
With AI technology experiencing a compound annual growth rate of 41% predicted through 2028, the opportunities for Palantir’s offerings are immense. Its leading position in the AI software platform market, backed by an impressive deal flow—123 contracts secured in Q2 alone—hints at significant future growth. Notably, larger deals are becoming more frequent, with the number of million-dollar contracts rising dramatically compared to the previous year.
Even as analysts weigh the potential for price corrections, Palantir’s price/earnings-to-growth (PEG) ratio indicates it may still be undervalued in light of its growth prospects, sitting well below 1.
