Investment advisors warn against buying Palantir shares before checking the figures first.
Palantir Technologies (WKN: A2QA4J), the data specialist known for its role in government and corporate data analysis, is set to release its third-quarter results today, November 4. The stock has been on a surge this year, with shares having surged by around 150% since the beginning of the year. However, a word of caution is advised for potential investors due to the company's extremely high valuation and emerging competitive risks.
The stock trades at very elevated multiples—252 times forward P/E and over 120 times sales—which requires sustained exceptional growth to justify its stock price. Most analysts are skeptical about the stock, with its price-to-earnings ratio currently well above 100. Despite this, most analysts currently recommend holding the Palantir stock, with four recommending buying and ten recommending holding, while seven recommend selling.
The key factors fueling caution include competitive pressures in the government segment, premium valuation leaving no margin for error, heavy reliance on US market growth, and partnerships affecting margins. Palantir faces growing competition for federal AI contracts from major players like OpenAI, Anthropic, Google, and xAI, which may reduce the company's ability to win large, multi-year contracts from the US Defense Department, potentially slowing growth in a key revenue segment.
The stock's lofty valuation means that any slight slowdown or failure to exceed high growth expectations could cause significant share price declines. The gap between the current price ($~$156) and analyst targets ($~$115) highlights downside risk if execution falters. Most of Palantir’s growth is concentrated in the US, with limited traction elsewhere, exposing the company to risks such as a possible US recession or reduced AI spending in that market.
While strategic alliances with companies like Accenture may boost sales, they also require revenue sharing, potentially putting pressure on profit margins over time. The new platform "AIP" (Artificial Intelligence Platform) launched last year is particularly in high demand and is seen as one of the main drivers of the stock's price. However, the average price target of $28.5 corresponds to a potential downside of over 30%.
Recently, analysts at Raymond James have downgraded the stock, stating that Palantir "has no room for error" in its upcoming results. The CEO and majority shareholder of the publisher Börsenmedien AG, Mr. Bernd Förtsch, has direct and indirect positions in Palantir Technologies. Analysts predict a 26% increase in revenue for the third quarter, amounting to $2.76 billion for the full year.
Investors are advised to consider these risks carefully, as any cracks in the growth story or government demand could lead to sharp stock corrections. Despite the strong performance and high demand for its AI Platform, the high valuation and emerging competitive risks make Palantir a risky investment.
Investing in Palantir Technologies, with its current high valuation and increasing competitive risks in the technology and business sector, requires careful consideration due to the stock's vulnerability to slight slowdowns and failure to exceed growth expectations. The lofty valuation of the company leaves little room for error, especially in crucial segments like federal AI contracts, where competition from major players like OpenAI, Anthropic, Google, and xAI could impact growth significantly.
