Palantir Technologies: High Expectations vs. Reality

Over the recent year, companies working with artificial intelligence (AI) have captivated investors, causing their stock values to soar. These businesses, geared up with cutting-edge technologies, are seen as potential key players for future growth.

One such enterprise in the thick of AI development is Palantir Technologies (PLTR -0.23%). The eminent data analytics firm made waves with its introduction of the AIP, the AI platform they claim has won over its clientele. Despite the glowing promises and the appealing outlook, I'm inclined to recommend a pause before taking the leap to invest in Palantir at this time.

Cautious Surrounding Management's Optimism

High expectations set by a company's management team are a red flag for me. Such lofty ambitions can create an arduous path for the company to outdo those expectations and may suggest that the stock's current valuation includes a hefty premium. This added premium is for the anticipated growth that hasn't yet come to fruition. Trading more than 60 times its future earnings, Palantir's stock seems to embody these concerns.

The enthusiasm from Palantir's CEO, Alex Karp, during earnings calls, along with Chief Revenue Officer Ryan Taylor's claims of converting boot camp attendees into lucrative contract signees rapidly, feed into these lofty investor expectations. Karp's bold declaration of the lack of competition in the U.S. market and Taylor's anecdotes about swift and substantial deals post-boot camp have set the bar high.

The discordance between these projections and Palantir's steady—not explosive—growth heightens investment risk.

Examining Palantir's Growth Metrics

Though posting respectable numbers with $634 million in revenue and a 21% year-over-year growth in the first three months of 2024, these figures aren't dramatic leaps from past performances.

The hype building from over 660 boot camps in the last quarter implies that we should have seen more significant growth. A modest increase in full-year revenue guidance does not necessarily mirror the company's grand narrative. Enhancements in the company's forecast have been minimal, casting doubt if these bright projections can be realized.

While Palantir contends it is growing and converting customers effectively with AIP, this claimed progress isn't clearly reflected in their financial outcomes or future projections. This discrepancy between company claims and tangible evidence of growth feeds into concerns about overhyped stocks with less tangible results.

Palantir: A Potentially Risky Investment

Palantir's share price dropped by 11% in the last three months—a sign that their latest quarterly figures aren't persuading investors to pay a premium. The existing price-to-earnings ratio and underwhelming alignment of results with management's statements point to the risk of further declines in share price.

Despite the potential for Palantir to be a rewarding investment in the long term, it might be sensible for investors to hold off for a few extra quarters. Waiting to see an actual upturn in Palantir's growth could be crucial before deciding to invest in this high-tech stock.

Palantir, Investment, Risk