The stock of data analytics firm Palantir (NYSE:PLTR) is experiencing a dip following a remarkable surge that commenced in May. During that time, the enigmatic tech company not only slightly surpassed quarterly earnings expectations (with earnings per share of $0.05, just a cent higher than estimates) but also showcased its AI capabilities, garnering substantial investor interest in the first half of the year.
However, the narrative has changed, and several leading AI stocks are currently facing significant pressure. Following its most recent quarterly report, Palantir stock encountered an 11% decline in its value, marking its worst trading session since last November. Consequently, there is a risk that a substantial portion of the gains made during the spring and summer might be erased.
CEO Alex Karp’s leadership warrants close monitoring of PLTR’s stock in light of its recent post-earnings setback. While the lackluster performance in the second quarter contributes to the decline, the broader category of high-valuation tech companies has been witnessing a downward trajectory since the beginning of August.
Nevertheless, considering the challenging task of valuing Palantir’s stock, the long-term potential for AI advancement remains considerable.
Reassessing Valuation: The Ongoing Volatility of Palantir Post-Earnings
Palantir’s second-quarter results were not overwhelmingly negative by any means. The figures were reasonably solid, albeit not groundbreaking enough to justify a sustained upward movement in the stock.
With earnings per share of $0.05 aligning closely with expectations and revenue amounting to $533 million – albeit slightly subdued – the market response might have been underwhelming for those who had driven up the stock since May.
Palantir’s management expressed confidence by revising its guidance, and a new announcement of a $1 billion share repurchase program indicated that the leadership perceived the stock to be attractively priced. However, after a staggering 160% surge since the lows of May, Palantir’s stock appeared far from inexpensive. Moreover, a 12% growth in revenue doesn’t reflect a company entering its prime. It’s my belief that the full trajectory of Palantir’s journey will unfold over several more years.
After enduring a significant decline in Wednesday’s downcast market session, PLTR is in the process of recovering from its post-earnings losses, having regained more than 2% of its value at the last update. Nonetheless, it appears that the former meme stock could be headed towards single-digit territory again, as investors appear to be growing cautious about both growth and tech stocks. Palantir is just one among many companies caught in this market sentiment shift.
Palantir Stock: Evaluating the Premium for Modest Revenue Growth
While pinpointing the exact bottom is a risky endeavor, maintaining a price-to-sales (P/S) ratio of over 18 times might prove challenging unless Palantir’s revenue growth significantly outperforms its current 12% projection. In any case, Palantir stands out as a firm capable of meeting AI expectations over the next few years. The full monetization potential of AI remains somewhat uncharted, and there’s a possibility that AI could propel Palantir beyond current estimates at some point in the future.
Meanwhile, I view Palantir’s AI Platform (AIP) as an entry point to numerous opportunities that could drive the company’s growth down the line. Naturally, gauging the demand for such an innovative offering in the early stages of the AI boom is complex. Could it surpass even the most optimistic forecasts? It’s a plausible scenario, as evidenced by this year’s performance of Nvidia (NASDAQ:NVDA) stock.
Wedbush Securities analyst Dan Ives appears to regard Palantir as a quintessential “AI pure play,” even likening it to the “Messi” of the group. While Mr. Ives’ perspective holds promise, time is needed as Palantir continues to expand its presence in the commercial sector.
For now, it might be prudent to await a more substantial decline in Palantir’s stock price. Any stock that more than doubles in a few months is susceptible to sharp corrections.
The Final Verdict on Palantir Stock
Despite the recent rebound, Palantir stock resembles a falling knife that might be best left untouched until the dust settles. While the company’s growth might be less than dazzling, the potential of Palantir’s AIP could manifest at some point down the line.
Featured Image: Megapixl © Burdun
