Palantir Technologies: A Stellar Year Raises Valuation Concerns

Remarkable Year-to-Date Gains: Palantir Technologies Inc PLTR has achieved an impressive 395% return in 2023, surpassing the performance of the S&P 500. However, this success brings about worries regarding the stock’s high valuation, leading several analysts to express cautious views on its current market position.

Current Valuation Metrics: As of now, Palantir shares are trading at a staggering price of almost 172 times its expected earnings for 2025 based on data from Benzinga Pro. For comparison, the average forward price-to-earnings ratio of its industry peers is 59.440 times. This means PLTR is nearly three times pricier than the average in its sector.

Technical analysis suggests that daily moving averages show a strong upward trend.

On Thursday, Palantir’s stock closed at $82.41, which is above both its eight-day and 50-day simple moving averages at $78.50 and $74.57, respectively. Its current price surpasses the 50-day moving average of $61.73 and the 200-day moving average of $36.13, according to Benzinga Pro.

However, the relative strength index (RSI) of 71.99 indicates that the stock may be overbought, hinting at a possible price correction soon.

Investor Sentiment: Benzinga reports that Palantir has a consensus ‘sell’ rating, with a price target averaging $35.58 from 20 analysts.

The highest projected price target is $80 from UBS, which rates the stock as ‘neutral’ as of December 19. UBS appreciates Palantir’s potential in AI growth but remains concerned due to its excessive valuation, citing a 49 times revenue and 124 times free cash flow ratio based on 2025 forecasts. Despite these valuation concerns, Palantir’s robust growth and increasing institutional investor interest make it an enticing option for future investment, according to UBS.

Notably, Dan Ives from Wedbush, who has a bullish stance on Palantir, set a price target of $75 on November 25. He expects significant increases in AI spending throughout 2025, calling Palantir “the Messi of AI” for its pivotal role in the sector. Ives points out the expanding applications for Palantir’s services and increasing demand for its enterprise AI solutions.

Mizuho has upped its price target to $44 while keeping its ‘underperform’ rating. This adjustment reflects broader trends in the software industry. The firm emphasizes key trends like digital transformation, AI adoption, data analytics, cloud transitions, DevOps, and cybersecurity as driving forces behind software growth. They believe the risk/reward balance is more favorable, but still view the software sector as attractive.

Wolfe Research has the lowest price target at $7.50, maintaining its ‘underperform’ rating adjusted last August. The average target price from UBS, Mizuho, and Baird suggests there could be a 20.96% downside for PLTR, positioning it at around $64.67.

Current Stock Movement: In pre-market trading, Palantir shares fell by 0.41% to $81.81. Similarly, the Invesco QQQ Trust, Series 1 QQQ decreased by 0.2% to $528.55.

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