Investing.com -- Raymond James has downgraded Palantir (NYSE:PLTR) to Market Perform from Outperform, citing concerns over its stretched valuation despite enthusiasm for its long-term prospects in artificial intelligence (AI).
According to the firm, Palantir’s stock, which has surged over 120% year-to-date and sixfold over the past two years, now carries a valuation that leaves little room for error.
They explain that Palantir’s current valuation stands at 26.1 times FY25 sales, making it "the richest software name amongst comps."
The firm noted that while Palantir’s inclusion in the S&P 500 on September 9th catalyzed a 23% stock increase in the last two weeks, further significant positive estimate revisions would be required to justify additional upside.
Raymond James highlights Palantir’s distinct three-phase evolution as a public company: an initial surge from $9 to around $40 in 2019-20, a subsequent trough from $39 to $6 during 2020-23 as revenue decelerated, and a new growth phase beginning in May 2023, driven by breakeven results and opportunities in AI.
The firm notes that Palantir’s AI platform (AIP) has significantly boosted its fundamentals, with U.S. commercial growth accelerating to around 80%.
While Raymond James forecasts a robust 21% revenue growth for Palantir in 2025 and 2026, they believe the stock’s current premium valuation leaves no room for any missteps.
The firm points out that Palantir is trading well above its historical average of 14.9x sales and its implied multiple of 10.4x sales based on a Rule 40 regression.
While Palantir remains well-positioned in the long term, Raymond James emphasizes that its "rich valuation" means the company must deliver flawless execution to meet heightened investor expectations.