Palantir rating ‘leaves no room for error’

Investing.com — Raymond James downgraded Palantir (NYSE: ) to Market Perform from Outperform, citing concerns about its stretched valuation despite enthusiasm for its long-term prospects in artificial intelligence (AI).

According to the company, Palantir shares, which are up more than 120% year-to-date and six-fold in the past two years, now have a valuation that leaves little room for error.

They explain that Palantir’s current valuation is 26.1 times FY25 sales, making it “the richest software name among the compounds.”

The firm noted that while Palantir’s listing on Sept. 9 has catalyzed a 23% rise in the stock over the past two weeks, significant new positive revisions to estimates would be needed to justify further growth.

Raymond James highlights Palantir’s distinct three-phase evolution as a public company: an initial rise from $9 to around $40 in 2019-2020, a subsequent low from $39 to $6 in 2020-23 as earnings have also decelerated a new phase of growth starting in May 2023, driven by profitability results and opportunities in AI.

The firm notes that Palantir’s AI platform ( AIP ) has significantly boosted its fundamentals, with US commercial growth accelerating to around 80%.

While Raymond James forecasts robust 21% revenue growth for Palantir in 2025 and 2026, they believe the current valuation of the premium stock leaves no room for a misstep.

The firm points out that Palantir trades well above its historical average of 14.9x sales and implied multiple of 10.4x sales based on a Rule of 40 regression.

While Palantir remains well-positioned for the long term, Raymond James points out that the “rich valuation” means the company needs to deliver flawless execution to meet heightened investor expectations.