Is Palantir’s stock set for more upside? Analysts say probably not

Palantir Technologies has seen its stock price soar by an impressive 539% since January 2023, largely fueled by its dominance in the artificial intelligence (AI) market.

However, analysts suggest this remarkable run may be nearing its conclusion, as several fundamental factors indicate limited upside potential in the medium term.

A recent downgrade from Raymond James, shifting Palantir’s rating from “Outperform” to “Market Perform,” reflects this cautious outlook.

Analysts weigh in on Palantir’s valuation concerns

While some analysts maintain optimism about Palantir’s long-term positioning in the AI landscape, others, like Brian Gesuale from Raymond James, express concerns about the stock’s current valuation.

“We are downgrading our rating to Market Perform from Outperform because we believe shares need to consolidate their stellar gains over the past couple of years,” Gesuale noted.

The analysts are wary that Palantir’s shares may have become too richly valued given the significant growth they’ve already experienced.

In an optimistic scenario projecting a 20% compound annual growth rate (CAGR) in revenue from 2025 to 2033, alongside expanding EBITDA margins of 51%—well above the industry average of 30%—the company’s enterprise value (EV) could reach approximately $130.68 billion.

This translates to a stock price of $43.28, suggesting only a 15% upside over the next nine years.

However, this scenario hinges on continued growth in AI revenue, which remains an uncertain prospect amid the rapidly evolving technology landscape.

Despite Palantir’s strong position, its valuation appears stretched compared to other technology companies.

With a price-to-sales (P/S) ratio of 35.2, Palantir significantly outpaces competitors like Microsoft, which trades at a P/S ratio of 13.4, and Nvidia, benefiting enormously from the AI boom with a forward price-to-earnings (P/E) ratio of 41.5, compared to Palantir’s steep 103.

These comparisons suggest that much of Palantir’s future growth may already be priced in, raising red flags for investors.

Insider selling raises additional concerns

The recent trend of insider selling at Palantir further complicates the outlook.

Co-founders Peter Thiel and Alex Karp have offloaded substantial shares, with Karp selling up to 9 million shares valued at approximately $325 million, while Thiel has sold over $448 million worth of shares and filed a notice to sell an additional 28.6 million shares, equating to over $1 billion or about 1.2% of Palantir’s market capitalization.

While insider transactions do not always correlate directly with price movements, they can provide insight into the founders’ perceptions of the company’s valuation.

In the medium term, Palantir will need to demonstrate revenue growth significantly above current estimates to justify its high valuation.

Moreover, the fact that its founders are selling shares could signal a potential price reversal.

While Palantir’s upcoming inclusion in the S&P 500 index might temporarily boost the stock price, this could also present an opportune moment for investors to cash out, realize gains, and await a more favorable entry point.