Amid concerns about its lofty valuation, Palantir Technologies insists there are growth opportunities ahead even as certain segments of the business face pressure, according to Citi Research following a sit-down meeting with the data-analytics company.
Shares were flat at $136.32 on Thursday after notching a record intraday high of $140 and all-time closing high of $136.35 on Wednesday.
Citi analyst Tyler Radke maintained a Neutral rating and $115 target price on Palantir stock. He noted that the company remains "upbeat" on the adoption of its Artificial Intelligence Platform, which, as the name suggests, allows users to combine Palantir's existing software with generative AI models. The AIP is the newest of Palantir's four principal software platforms.
Palantir counts Citi itself among its clients. The bank's wealth division inked a deal with the company in mid-April. In a note on May 30, Citi said it had recently implemented Palantir technology, citing its "strength in data ontology."
Management cited a "growing pipeline of other financial services customers" on the heels of that contract -- a welcome development, considering the segment has traditionally been a "pain point" for Palantir, Radke said.
While Palantir is seen as a government heavyweight, the company noted some volatility in contracting over the last few months amid the Trump administration's staffing and budget cuts, Citi said.
Furthermore, there is limited visibility into how Trump's Golden Dome missile-defense system might present an opportunity for Palantir to capitalize on defense spending. Radke indicated that Palantir declined to speak at length about the matter "but the company is excited about the prospects."
International momentum is healthy, but European commercial trends remain challenged "with a lack of buyer urgency for AI," Radke wrote. Palantir has opted instead to shift its focus to the Middle East, sensing opportunities on both the government and commercial sides within the region.
While commentary in the note largely was positive, Radke highlighted concerns about the stock's ability to grow into its valuation, especially if large contracts "don't materialize as expected."
Barron's previously reported that Palantir trades at a 12-month forward price-to-earnings ratio of 210.87 versus the S&P 500's forward P/E of 21.76. The stock's very high valuation coupled with its high beta, or degree of volatility versus the broader market, could explain why most on Wall Street are on the fence. Of 28 analysts polled by FactSet, only six rate Palantir at Buy or the equivalent.
As of June 12, the stock was trading at a forward enterprise value-to-sales multiple of 71.81. Radke noted earlier this year that the return profile for software companies trading at above 50 times forward EV/sales historically "hasn't been good."
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