Should You Sell Overvalued Palantir AI Stock? Wall Street's Verdict

Published Date::27/09/2024

Palantir's AI services have never been more popular, but its stock valuation has reached an all-time high. Should investors heed Wall Street's advice and sell?

Using Wall Street analysts' price targets to determine whether a stock is a buy or a sell isn't the best strategy. While it should help inform investors of how others think of the stock, it shouldn't be the be-all and end-all.

One popular artificial intelligence (AI) stock that these analysts (on average) say to sell now is Palantir (NYSE  PLTR). According to an average of 15 analysts, the average price target for Palantir stock is $27.08, which indicates a nearly 30% downside.

Palantir's AI services have never been more popular. The company has built its entire software package around AI from the beginning, giving it a leg up on many competitors in the space. Palantir started as a company that made AI software for the government, but it has since expanded to the commercial side.

However, Palantir's latest run-up was due to huge demand for its Artificial Intelligence Platform (AIP) product. AIP allows AI integration throughout a business rather than using a generative AI model on the side. By integrating AI into workflows, businesses can control how they want AI to be used within their operations.

In the company's second quarter (ended June 30), U.S. commercial revenue rose 55% year over year to $159 million. While this is only 24% of total revenue, it's the fastest-growing business segment. U.S. customer count also exploded, rising 83% year over year to 295 customers.

However, if you annualize the Q2 revenue and divide it by the customer count, you get an average revenue per U.S. customer of $2.16 million. Few businesses can afford more than $2 million per year for a software package, so this limits the size of clients Palantir can sign up.

Still, that hasn't stopped Palantir from succeeding as a company. In Q2, revenue grew by 27% to $678 million while posting a profit margin of nearly 20%. However, the market has given the stock an unbelievable price tag, which has caused its valuation to swell.

FAQS:

Q: What is Palantir's Artificial Intelligence Platform (AIP) product?

A: AIP allows AI integration throughout a business rather than using a generative AI model on the side. By integrating AI into workflows, businesses can control how they want AI to be used within their operations.

Q: How has Palantir's stock performed recently?

A: Palantir's stock has run up to a point where its valuation no longer makes sense, with a price-to-sales ratio of over 36 times sales.

Q: What is Wall Street's average price target for Palantir stock?

A: According to an average of 15 analysts, the average price target for Palantir stock is $27.08, which indicates a nearly 30% downside.

Q: Is Palantir's business succeeding?

A: Yes, Palantir's business is succeeding, with revenue growing by 27% to $678 million in Q2 and a profit margin of nearly 20%.

Q: Should investors buy or sell Palantir stock?

A: I think the stock is a sell, but at the very least, investors should avoid purchasing any more shares until the valuation has returned to more reasonable levels.

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