After Earnings, is Palantir Stock a Buy, Sell or Hold?

•
Current
price:
$24

•
Morningstar
Rating:
2
stars

•
Morningstar Economic
Moat
Rating:
Wide

•
Morningstar Uncertainty
Rating:
High

What
We
Thought
of
Palantir’s
Earnings

Palantir
saw
strong
results
in
the
quarter,
with
good
momentum
for
its
artificial
intelligence
platform
in
the
US
commercial
market.
We
see
this
as
a
promising
leading
indicator,
since
these
customers
are
often
early
adopters
of
software
solutions,
ahead
of
their
global
peers.

There
appears
to
be
a
clear
delineation
between
the
fundamentals-focused
perspective
on
Palantir
and
how
the
street
is
valuing
it.
We
are
very
bullish
on
the
firm,
but
we
cannot
justify
its
current
market
price.
While
our
near-term
estimates
are
ahead
of
consensus
on
both
growth
and
profitability,
our
fair
value
estimate
is
markedly
below
the
street.
We
saw
Palantir
trade
at
elevated
multiples
before
the
wind
was
taken
out
of
its
sails
(and
sales),
so
we’d
be
wary
of
a
repeat
of
2022/early
2023.

PLTR
Bulls
Say

•
Palantir
has
strong
secular
tailwinds.
The
artificial
intelligence/machine
learning
market
is
expected
to
grow
rapidly
due
to
the
exponential
increase
in
data
harvested
by
organizations.

•
With
products
targeting
both
commercial
and
governmental
clients,
Palantir
has
a
distributed
top
line,
with
noncyclical
governmental
revenue
insulating
the
overall
top
line
during
lean
times.

•
Palantir’s
focus
on
modular
sales
could
lead
to
substantially
more
commercial
clients,
which
the
firm
could
subsequently
upsell.

PLTR
Bears
Say

•
By
not
selling
to
countries
or
companies
that
are
antithetical
to
its
mission
and
cultural
values,
Palantir
has
restricted
its
growth
opportunities.

•
Palantir’s
AI
platform
is
off
to
a
good
start,
but
we
anticipate
robust
AI
competition
in
the
years
ahead.

•
Palantir’s
executive
team
has
made
questionable
strategic
decisions
in
the
past.
While
past
performance
isn’t
necessarily
indicative
of
future
results,
the
missteps
could
merit
caution
from
potential
investors.

Is
Palantir
Stock
Fairly
Valued?

With
its
2-star
rating,
we
believe
Palantir’s
stock
is
overvalued
compared
with
our
long-term
fair
value
estimate.

We
forecast
that
Palantir’s
revenue
will
see
a
21%
compound
annual
growth
rate
over
the
next
five
years
as
it
expands
both
its
governmental
and
commercial
operations.
We
expect
the
majority
of
this
top-line
growth
to
be
driven
by
commercial
clients
as
the
company
seeks
to
broaden
that
base.
While
government
clients
can
be
sticky,
large
governmental
contracts
create
lumpiness
in
revenue.
As
a
result,
Palantir’s
shift
to
more
commercial
clients
should
create
a
more
ratable
revenue
mix.
We
also
expect
the
firm
to
continue
expanding
sales
within
its
existing
client
base,
based
on
its
strong
net
retention
rate.

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