Palantir Technologies (NYSE:PLTR) has shown strong performance this year, given investor interest in AI stocks. The company’s earnings reports provided plenty of optimism and fueled this rally. However, with the company’s government revenue slightly below expectations at $308 million, while commercial revenue rises 23% to $251 million, there’s room for discussion concerning how good these numbers were.
Of course, CEO Alexander Karp expects significant growth by 2025. On the other hand, analyst Brian White warns against overestimating Palantir’s value based solely on one quarter.
After an earnings-driven surge, PLTR trades at approximately 80 times forward earnings, sparking concerns over its premium valuation. Insider selling, particularly by a venture capital fund associated with co-founder Peter Thiel, introduces an additional layer of uncertainty.
Here are some signs and reasons why buying PLTR stock can be a bad idea.
PLTR Stock: A Look on the Bullish Side
Before anything else, it’s only fair to discuss some bullish points from investors who love PLTR stock first.
Palantir is experiencing the impact of high AI demand, conducting AI bootcamps with 140 organizations by month-end. With numerous AIP use cases yet to be explored, Palantir is only beginning its growth journey. As of September, it had 453 customers, up 34% from a year ago, including 330 commercial customers, a 45% increase. The quarter saw the closure of 80 significant deals, with 12 valued at $10 million or more.
Additionally, Palantir is set to achieve $2.2 billion in revenue this year, marking a 16% increase from 2022’s $1.9 billion. Although smaller than tech giants, its consistent million-dollar deals, surging demand, and profitability suggest significant room for future growth, keeping investors optimistic.
Contract with U.K NHS
Palantir Technologies faces a market downturn despite a significant NHS contract. The deal aims to overhaul the British healthcare system, introducing the Federated Data Platform for efficient patient care, but investors seem displeased, impacting PLTR stock.
The platform will address five NHS priorities: elective recovery, care coordination, vaccination, population health management, and supply-chain management. Valued at approximately £330 million (around $413.87 million) for a seven-year term, the contract disappointed market observers, leading to a decline in PLTR stock. William Blair analysts, led by Louie DiPalma, noted that the NHS website had initially indicated a total contract value of £480 million over seven years.
DiPalma clarified that the total value of the NHS contract might reach 480 million pounds with options. Despite the positive news, William Blair gives PLTR an “underperform” rating. Palantir highlights the contract as a win for AI software development. Options traders show bearish activity.
Selling Pressure Something to Watch
Mithril, Peter Thiel’s venture fund, sold $48 million worth of PLTR stock despite Palantir’s impressive 208% rise this year. The stock sale aligned with Palantir’s positive performance, driven by AI capabilities and its AI platform launch. Analysts maintained a cautious stance, with a Hold consensus and an average price target indicating a 24.13% downside.
Palantir’s U.S. commercial sector achieved robust growth, with a 33% year-over-year and 12% QoQ increase in customers. Over three years, this metric grew 10x, emphasizing strong acquisition strategies. The “Artificial Intelligence Platform” gained rapid adoption by nearly 300 organizations, showcasing market potential. Swift customer base growth underscores market traction for PLTR stock, but caution is advised due to the limited AI impact track record.
My recommendation for PLTR stock is to hold cautiously right now. I think investors need to monitor the stock for potential significant price movements. Entry points are crucial for long-term returns, and current levels may pose challenges in achieving desired rates of return.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.