Palantir stock forecast: inflated valuations pose risks for further growth

Since the beginning of 2024, Palantir Technologies stock has surged by over 300%. This impressive growth is driven by two key developments: a strategic partnership with Microsoft and the company’s inclusion in the S&P 500 index in September 2024. However, Palantir’s revenue during the same period has increased by only 14%, indicating that investor expectations may be overly optimistic, as the company’s performance does not align with such rapid stock growth.

The article examines Palantir Technologies, its revenue sources, Q3 2024 performance results, Q4 expectations, and current share price. It also includes a Palantir Technologies stock analysis and forecast for Q1 2025 and the full year.

About Palantir Technologies Inc.

Palantir Technologies was founded in 2003 by Peter Thiel, Alexander Karp, Joseph Lonsdale, Stephen Cohen, and Nathan Gеttings. The company went public on 30 September 2020 under the PLTR ticker symbol on the New York Stock Exchange.

Palantir specialises in developing software for big data analysis, including Gotham, designed for national security and intelligence agencies; Foundry, for the corporate sector; and Apollo, for deploying software releases. These products are available to both government and private clients, providing software solutions for data management and analysis, emphasising privacy and security.

Palantir Technologies Inc.’s main financial flows

Palantir’s revenue primarily comes from the sale of licences for its software products and the provision of related services. The main revenue streams are listed below:

• Licence fees: companies and government agencies purchase licences to use Palantir platforms (Gotham, Foundry)
• Subscriptions and services: in addition to initial licences, Palantir offers subscriptions for technical support and upgrades and services for program implementation, customisation, and personnel training
• Professional services: provision of highly qualified services such as data analysis, development of tailored solutions, and assistance with system integration
• Government contracts: a significant portion of the revenue is derived from agreements with government agencies, which use the purchased technologies for data analysis in security, intelligence, and other governmental domains
• Corporate sector: in recent years, the company has been actively expanding its presence in the commercial market, where it offers its analytical solutions to large corporations to optimise their business processes, manage risks, and process statistical data

As a result, Palantir’s total revenue is generated through a combination of licensed software sales, subscriptions, professional services, and long-term contracts with government and private clients.

Palantir Technologies Inc.’s Q3 2024 report

Palantir Technologies released its Q3 2024 data on 4 November 2024. The key report highlights are outlined below:

• Revenue: 726.5 million USD (+30%)
• Net income: 149.3 million USD (+103%)
• Earnings per share: 0.06 USD (+100%)

Revenue by segment and region:

• US: 498.9 million USD (+45%)
• UK: 69.5 million USD (+10%)
• Other countries: 157.0 million USD (+21%)
• Government: 408.3 million USD (+33%)
• Commercial revenue: 317.5 million USD (+27%)
• US government revenue: 319.8 million USD (+39%)
• US commercial Revenue: 179.1 million USD (+34%)

The report shows that the US government remains Palantir Technologies’ primary source of revenue, contributing nearly half of the company’s total revenue. Palantir forecasts revenue of 767.0-771.0 million USD in Q4 2024, representing a 5-6% increase compared to the previous quarter.

Expert forecasts for Palantir Technologies Inc.’s stock

• Barchart: out of 17 analysts, two rated Palantir Technologies stock as a Strong Buy, eight as a Hold, two as a Sell, and five as a Strong Sell. The maximum price target for buying is 80 USD, while the minimum for selling is 11 USD
• MarketBeat: two out of 20 specialists assigned a Buy rating to the shares, while eleven gave a Hold recommendation, and seven rated them as a Sell. The maximum price target for buying is 80 USD, while the minimum one for selling is 9 USD
• TipRanks: two out of 16 respondents designated a Buy rating to the stock, eight recommended it as a Hold, and six rated it as a Sell. The maximum price target for buying is 80 USD, while the minimum for selling is 11 USD
• Stock Analysis: out of 16 experts, one rated the shares as a Strong Buy, one as a Buy, eight as a Hold, four as a Sell, and two as a Strong Sell. The maximum price target for buying is 75 USD, while the minimum for selling is 9 USD

Based on the above information, most market analysts recommend either holding the shares in the portfolio or selling them.

Palantir Technologies Inc.’s stock price forecast for Q1 2025

On 13 February 2023, Palantir Technologies reported net income for Q4 2022 for the first time. Since then, the company has consistently posted quarterly net earnings and was included in the S&P 500 index in September 2024. The company’s profitability attracted investor interest, driving up its stock price. On 8 August 2024, it was announced that Palantir and Microsoft would partner to deliver enhanced analytics and AI-powered services and products to classified national security networks, which supported the upward trend in the shares.

The inclusion of Palantir Technologies in the S&P 500 index and the release of another earnings report for Q2 2024 generated investor excitement, boosting its share price. Since the first report showing net income, Palantir’s share value has surged by over 700%, with the main growth recorded in the second half of 2024. As a result, the P/E ratio was 345, almost ten times higher than the average for companies in the software sector. Unsurprisingly, many experts project a price decline based on the current Palantir Technologies stock performance, citing limited potential for further growth. Two scenarios for future price movements are outlined below.

The optimistic forecast for Palantir Technologies stock suggests a rebound from the 68 USD support level, followed by price growth to 80 USD. This level serves as resistance and is projected by many experts as the growth target.

The pessimistic forecast predicts a breakout below the 68 USD support level, which could prompt investors to lock in profits from earlier investments. As a result, the price could decline to the 45 USD support level. This scenario is considered the most likely outcome.

Palantir Technologies Inc.’s stock price forecast for 2025

On the weekly timeframe, Palantir Technologies stock is testing the 68 USD support level. Further price movements near this level could shape potential scenarios for price trends in 2025.

The optimistic forecast for Palantir Technologies stock suggests a rebound from the 68 USD support level, followed by an increase in price to 80 USD. If demand for the shares remains high, they could surpass this resistance and advance to 90 USD. However, further price growth without a correction will be difficult, so the stock could retreat to 68 USD after testing the 90 USD resistance level.

The pessimistic forecast for Palantir Technologies stock points to a breakout below the 68 USD support level, opening the potential for a decline to the main support at 45 USD. If negative sentiment prevails among investors in the market and this support level is breached, the share price could drop to 30 USD.

Risks of investing in Palantir Technologies Inc.’s stock

While investing in Palantir Technologies stock, it is essential to consider potential challenges the company may encounter. The main ones are outlined below:

• Reliance on government contracts: much of Palantir’s revenue depends on government contracts, particularly with the US administration. Any changes in the policy, budget constraints, or cancellation of contracts may significantly affect its revenue
• Competition: the data analysis and integration market is becoming increasingly competitive. Companies like Alteryx, Oracle Corp (NYSE: ORCL), Splunk, and others may offer more attractive alternative solutions, potentially reducing Palantir’s market share
• High valuations and multiples: Palantir’s fundamental analysis shows that the company’s stock is valued with exceptionally high multiples, with a P/E ratio of 345 and a P/S ratio of 58. This indicates potential overvaluation and a risk of a price correction. For comparison, Oracle Corp has a P/E ratio of 40 and a P/S ratio of 8
• Unprofitability: historically, Palantir has been loss-making for an extended period and only became profitable during heightened geopolitical tensions. Therefore, if current international conflicts are resolved, the company’s financial position could deteriorate
• Economic downturn: reduced budgets for IT solutions among government and private clients during recessionary periods may negatively impact Palantir’s revenue

Summary

Geopolitical tensions have boosted demand for Palantir’s services from government agencies, but the company is also actively expanding its commercial segment. However, the company’s revenue is misaligned with its share valuation under current market conditions, adding pressure to the stock price. To sustain the current stock price level of 70 USD, Palantir needs to achieve higher revenue growth rates. Lower revenue inflows or unmet market expectations may lead to a sharp decline in the stock price. Therefore, investments in Palantir Technologies at the current level can be classified as high-risk.