Morgan Stanley Analyzes Palantir: Government Business Outweighs Commercial Sector in CY25 Revenue Estimates for AI Growth

This content is informational only and does not constitute investment advice. The author holds no positions in any stocks mentioned.

Insights into Palantir’s Current Market Position

Palantir Technologies (NYSE: PLTR), a leading AI-driven Software-as-a-Service (SaaS) provider, continues to capture attention on Wall Street. The company’s robust data analytics platform serves both corporations and government entities, and while analysts express admiration for its foundational business strengths, they simultaneously voice concern over its lofty stock valuation. Recently, Morgan Stanley weighed in on Palantir, offering comprehensive insights into the firm’s outlook.

MORGAN STANLEY ASSUMES COVERAGE ON $PLTR WITH UNDERWEIGHT RATING, SETS PT AT $60

Analyst comments: “The inflection in growth and our positively revised assessment of Palantir’s positioning in the Generative AI cycle is well reflected in shares, which were up +34% in 2024,…

— Wall St Engine (@wallstengine) January 6, 2025

Growth Perspectives from Morgan Stanley

Sanjit Singh, an analyst at Morgan Stanley, recognizes a significant “inflection in growth”for Palantir’s operations. He mentioned that while the firm is looking for avenues to adopt a more favorable stance regarding Palantir’s shares, the absence of clear visibility on material estimate revisions poses a challenge, resulting in an assessment that PLTR is overvalued relative to its intrinsic worth.

Key Observations on Company Growth

The projections for free cash flow (FCF) for 2025 have surged by 41%, mainly due to rigorous expense management, while revenue expectations saw a modest 10% increase since January.
Stability appears to be taking hold in business momentum; however, 13 out of 23 key performance indicators (KPIs) have shown a decline quarter-on-quarter in Q3, following significant improvements observed in the previous quarter.
Despite high anticipation surrounding the commercial sector, which is crucial to AI initiatives, it has added less to the forecasted revenue revisions for 2025 compared to the government sector.

Concerns Regarding Valuation

Among the most pressing issues lies in the valuation of Palantir’s shares. Morgan Stanley highlights several alarming trends:

Palantir’s stock surged by 34% in 2024, primarily due to expansion in valuation multiples, with a staggering 292% increase in its EV/NTM Sales multiple.
On a discounted cash flow (DCF) basis, the current stock price reflects an assumption of nearly 30% compound annual growth rate (CAGR) over the next decade, alongside FCF margins projected at 41%, which would entail approximately $20.9 billion in FCF by 2035.
The valuation metrics for Palantir far exceed those of its high-growth software counterparts, standing at 111x EV/CY26 FCF and 41.1x EV/CY26 Sales, which marks a significant premium.

Echoes of Concern From Analysts

The valuation apprehensions raised by Morgan Stanley resonate with remarks made by Jefferies analyst Brent Thill in November 2024, who pointed out,

“PLTR trades at 43x CY25 revenue, well over 2x the next highest software name.”

Adding to the cautious sentiment, notable financial commentator Jim Cramer has also expressed interest in Palantir, stating his plans to conduct further analysis on investing in PLTR and Tesla (TSLA), which could amplify market speculation:

Jim Cramer just said he is:

“Working on a Sunday brainstorm about buying Palantir $PLTR and Tesla $TSLA” pic.twitter.com/3lFANEt6ou

— Evan (@StockMKTNewz) January 5, 2025

A Cautionary Outlook

As valuation apprehensions mount, the implications for Palantir’s stock trajectory warrant close monitoring. The potential for the so-called “Cramer curse”adds another layer of intrigue, considering the mixed signals from Wall Street. Stakeholders and interested investors must navigate these complex dynamics with caution.

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