Whereas Palantir Technologies stock (NASDAQ: PLTR) had a stellar 2024, with its inventory rising by about 4x, pushed by the market frenzy surrounding synthetic intelligence shares and optimism in regards to the outcomes of the U.S. election. Nonetheless, the inventory has faltered in 2025, declining round 7% year-to-date and slipping 11% previously week, buying and selling at roughly $68 per share. A few elements have been weighing the inventory down of late. For one, Morgan Stanley initiated protection on the inventory with an Underweight ranking whereas Deutsche Financial institution additionally printed new bearish protection on Palantir inventory with a value estimate of $35 per share, roughly half the present market value. Excessive-profile fund supervisor Cathie Wooden’s ARK Funding Administration has additionally been offloading a few of its holdings within the inventory. The yields on U.S. Treasuries have additionally trended larger this week and that is sometimes a web damaging for high-growth shares akin to Palantir. We’ve maintained that Palantir is a high-risk guess at this juncture for a few causes, together with its excessive valuation (over 150x consensus FY’25 earnings), its heavy dependence on authorities gross sales, in addition to appreciable insider promoting within the inventory. Right here’s a better take a look at what’s been occurring with Palantir and the potential dangers for the inventory.
What Drove The 2024 Rally?
Traders have been drawn to Palantir’s success with AI-driven instruments and vital authorities contract wins over the past yr. There may be additionally optimism surrounding the Donald Trump-led Republican administration, which is predicted to extend federal spending on nationwide safety and immigration, driving demand for Palantir’s software program instruments. Palantir’s co-founder Peter Thiel, was an early Trump ally and he’s additionally seen as holding loads of affect inside the incoming administration. Moreover, Palantir inventory was lately added to the Nasdaq-100 following the index’s annual reconstitution. There have been reviews that Palantir was speaking with a number of different tech firms together with Elon Musk’s SpaceX to kind a consortium that might collectively bid for U.S. authorities protection contracts historically dominated by an oligopoly of so-called “prime” contractors akin to Lockheed Martin and Raytheon. Individually, in order for you upside with a smoother trip than a person inventory, take into account the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
What Are The Dangers Going Ahead?
Regardless of a number of optimistic developments over the previous yr, Palantir inventory faces some challenges. One key subject is the corporate’s blended development within the industrial sector by way of its Foundry platform which is designed for industrial prospects in industries like manufacturing, retail, and healthcare. Though Palantir has emphasised that the industrial market affords a bigger long-term alternative, it’s nonetheless very reliant on authorities gross sales, that are extra unpredictable and irregular in nature. Over Q3 commercial-related gross sales expanded by 27% to $317 million, falling in need of consensus estimates, whereas government-related revenues beat expectations. The corporate’s massive contract sizes and sophisticated, costly implementations restrict its scalability for small and mid-sized companies. Moreover, Palantir faces competitors from huge tech giants akin to Microsoft, which might leverage cross-selling alternatives, in addition to specialised knowledge analytics companies focusing on area of interest markets.
The motion in PLTR inventory over the past 4-year interval has been removed from constant, with annual returns being significantly extra risky than the S&P 500. Returns for the inventory have been -23% in 2021, -65% in 2022, 167% in 2023, and 340% in 2024. The Trefis High Quality (HQ) Portfolio, with a group of 30 shares, is significantly much less risky. And it has comfortably outperformed the S&P 500 over the past 4-year interval. Why is that? As a gaggle, HQ Portfolio shares offered higher returns with much less threat versus the benchmark index; much less of a roller-coaster trip as evident in HQ Portfolio efficiency metrics. Given the present unsure macroeconomic setting round fee cuts and a number of wars, might PLTR face the same state of affairs because it did in 2021 and 2022 and underperform the S&P over the subsequent 12 months – or will it see a restoration?
Palantir’s valuation can be too wealthy, in our view. The inventory trades at about 45x ahead income and at greater than 140x consensus FY’25 earnings. Nonetheless, the corporate’s development charges are pegged at nearly 25% per consensus estimates. As compared, cloud knowledge warehousing and analytics participant Snowflake trades at about 12x revenues with its development charges additionally being in the same vary. In actual fact, AI bellwether Nvidia (NASDAQ:NVDA) inventory trades at nearly 31x estimated earnings for the subsequent fiscal, despite the fact that revenues are on monitor to greater than double within the 2024 yr, with the consensus projecting over 51% development for subsequent yr. (Must you Purchase, Promote, Or Maintain Nvidia Inventory?)
| Returns | Jan 2025 MTD [1] |
Since begin of 2024 [1] |
2017-25 Whole [2] |
| PLTR Return | -7% | 308% | 221% |
| S&P 500 Return | 0% | 24% | 164% |
| Trefis Bolstered Worth Portfolio | 1% | 17% | 756% |
[1] Returns as of 1/10/2025
[2] Cumulative whole returns for the reason that finish of 2016
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The views and opinions expressed herein are the views and opinions of the creator and don’t essentially mirror these of Nasdaq, Inc.
