TLDRs:
- Palantir shares fell 16% in November amid mounting concerns over AI stock valuations.
- Analysts warn Palantir’s forward earnings ratio of 233 is far above peers Nvidia and Alphabet.
- Strong Q3 revenue growth of $1.2B did little to ease investor apprehension.
- New contracts with PwC UK and FTAI fail to halt stock decline.
Palantir Technologies (PLTR) saw its shares tumble 16% in November, marking the company’s most significant monthly decline since August 2023.
Investors reacted to rising concerns about the sky-high valuations of AI stocks, sparking a broader sell-off across the sector.
Despite robust revenue figures and major new partnerships, market sentiment around AI-driven growth appears cautious, especially for companies trading at extremely high forward multiples.
Palantir Technologies Inc., PLTR
Q3 Revenue Beats Estimates
Earlier in November, Palantir reported third-quarter revenue of US$1.2 billion, surpassing analyst expectations of US$1.1 billion.
The company’s US government contracts grew 52% year-over-year, reaching $486 million, while commercial revenue more than doubled to $397 million. Overall, Q3 revenue climbed 63% compared to the previous year, and net income more than tripled to $475.6 million.
Palantir also raised its guidance for Q4, forecasting revenue around $1.3 billion, signaling ongoing demand for its AI software platforms.
Analyst Concerns Over Valuation
Despite these strong financials, several analysts remain wary. Experts at Jefferies and Deutsche Bank described Palantir’s valuation as “extreme” and “difficult to wrap our heads around.”
Royal Bank of Canada highlighted the company’s concentrated growth profile as another risk factor. At the close of November, Palantir’s stock was trading at 233 times forward earnings, far exceeding comparable AI-focused firms like Nvidia and Alphabet. Investors are increasingly weighing whether the company’s rapid growth can justify its lofty market price.
Deals Fail to Reverse Slide
Palantir has continued to expand its strategic partnerships, including agreements with PwC in the United Kingdom and FTAI, aimed at leveraging AI capabilities across enterprise clients.
The company’s channel programs and collaborations with system integrators also bolster its presence in both public and private sectors. Yet, even these new contracts could not stem the stock’s downward momentum. Analysts suggest that while demand for AI solutions is real, growth may not scale as quickly as projected, particularly outside the US market.
Looking Ahead
The sell-off in Palantir shares reflects broader investor caution in the AI sector. While the company demonstrates strong revenue growth, expanding commercial contracts, and rising customer numbers, the extreme forward earnings multiple raises questions about sustainability.
With AI adoption continuing to accelerate, market watchers will be closely observing Palantir’s performance in Q4 and its ability to maintain growth while addressing valuation concerns.
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