Palantir (PLTR) Exceeds “Rule of 40” with Morgan Stanley Warning of “Lack of Downside Catalysts” for Next 3-4 Quarters

Palantir (PLTR) Exceeds “Rule of 40” with Morgan Stanley Warning of “Lack of Downside Catalysts” for Next 3-4 Quarters

This is not investment advice. The author has no position in any of the stocks mentioned.

Palantir Surprises with Stellar Earnings Report

In a remarkable turn of events this earnings season, Palantir Technologies has not only outperformed expectations for the quarter ending December 2024 but also delivered a forecast that surpasses even the highest projections made by analysts at UBS. This unexpected success has propelled Palantir’s stock to rise over 20%, edging towards a market capitalization of $200 billion.

What is Palantir?

For those unfamiliar with the company, Palantir is a leader in AI-driven Software-as-a-Service (SaaS) solutions, enabling both corporate clients and government bodies to collect and analyze extensive datasets. This popular stock had already been experiencing substantial growth prior to this week’s earnings announcement, benefiting significantly from the bullish trends surrounding artificial intelligence.

Diving into the Financials

In Q4 2024, Palantir reported impressive earnings of $827.5 million, reflecting a substantial year-over-year increase of 36%.The company’s outlook for fiscal year 2025 is equally optimistic, with anticipated revenues ranging between $3.74 billion and $3.76 billion, well above the market consensus of $3.54 billion.

Analysts Praise Palantir’s Growth Trajectory

Analysts from UBS highlighted Palantir’s strong performance by noting:

“The 1Q25/2025 guide of 36%/31% was well above even our Street-high estimates, with the guide for US commercial revenue growth of 54% being the standout.”

Robust Deal Activity

During Q4 2024, Palantir successfully closed 129 contracts, each valued at a minimum of $1 million, underlining the company’s robust demand in the market.

Evaluating Performance Metrics

Importantly, Palantir’s performance metrics are impressive, particularly with respect to the “Rule of 40, ”which assesses a company’s health based on the sum of its growth rate and profit margin. Palantir achieved a remarkable score of 81% for Q4 2024.

Analyst Perspectives on Future Performance

As Palantir’s potential remains a focal point for analysts, Morgan Stanley’s Sanjit Singh anticipates minimal downside risk due to its “ultra premium valuation.” He highlights that:

“Despite an ultra premium valuation, we see a lack of downside catalysts over the next 3-4 quarters.”

Singh suggests several bullish indicators for the stock, including:

“This leaves us with valuation as the primary remaining concern. While we think the long-term return outlook appears unattractive at 52x CY26 sales and 120x CY26 FCF, with revenue poised to grow over 30% in 2025 – this is an extraordinary level of growth for a software company, particularly at a near $4 billion revenue scale.”

Conversely, Raymond James’s Brian Gesuale advocates a more cautious approach, maintaining a Market Perform rating due to Palantir’s elevated valuation despite acknowledging the company’s strong position in AI:

“While we remain enthusiastic about Palantir’s longer-term positioning in AI, we believe shares need to consolidate the impressive gains of the past couple of years and grow into their high valuation.”

A Concerning Trend in Valuation

The dialogue surrounding Palantir’s high valuation continues. Back in November 2024, Jefferies’ analysts pointed out that the stock was trading at over twice the valuation of its closest software competitors. Notably, Palantir’s stock price has only expanded its valuation premium since then.

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