Palantir Stock Keeps Rising. Why an Analyst Says to Take Some Profits.

Stephen Bersey, head of technology research at HSBC Global Research, on Wednesday cut his rating on Palantir shares to Hold from Buy, while keeping his $22 target price, or about $3 below recent levels. He worries about the stock’s heightened valuation, thanks to the ongoing rally.

He remains bullish on Palantir’s fundamentals, however. He says the company can grow earnings on a compounded basis more than 24% a year through 2028.

In the December quarter, Palantir’s commercial revenue was $284 million, up 32% from a year ago, and ahead of the Wall Street forecast of $271 million. That included 70% growth in the U.S. commercial business.

“Palantir is well positioned to benefit from the strong demand for its artificial intelligence products, especially in the faster-growing Commercial segment while growth in the Government segment will likely reaccelerate with the potential execution of government contracts in 2024 and higher defense spending,” he writes in a research note. “The company’s commercial business is witnessing a strong acceleration, especially in the U.S., as demand for the company’s AI Platform remains strong.”

Last week, in an interview with Barron’s to discuss earnings, CEO Alex Karp said the commercial business in the quarter was “bombastic, baller, incomprehensibly good.”

But Bersey notes that the stock now trades at more than 76 times his 2024 non-GAAP per-share earnings estimate, more than twice that of other software stocks he tracks. The premium is even higher if you use GAAP, or generally accepted accounting principles—at more than 105 times this year’s earnings, versus 47 times for the sector, he adds. 

“Therefore, we downgrade our rating to Hold as the valuation looks full following the stock’s recent strong performance,” he writes.

Write to Eric J. Savitz at [email protected]