Stock of the Week: Palantir
The mother of all bubbles?
Welcome to this 5th edition of “Stock of the Week”. You can find all the previous stocks of the week and 250 other articles on my main page.
Here are the links to the four previous “Stocks of the Week” as well
This week's stock pick is clearly Palantir. Following strong earnings, the market reaction has been incredible, soaring 24% in a single day. Let’s take a deep dive into the stock, explore analysts’ recommendations, and identify potential buying zones in case you are still considering a purchase after reading this article!
Let me know what you think of Palantir in the comments!
One-Pager
The stock at a glance!
Recent news
CEO Alex Karp emphasized Palantir's role in leading the AI revolution, describing the demand for its AI software as "untamed organic growth." This sentiment reflects the market's high expectations for Palantir's growth in the AI sector
Palantir is in discussions with other leading tech firms, including SpaceX and OpenAI, to form a consortium aimed at securing more US defense contracts. This initiative seeks to leverage Silicon Valley's innovation to capture a significant portion of the U.S. government's $850 billion defense budget.
Last earnings report
Palantir reported impressive Q4 earnings, with revenue growing by 36% year over year, and US revenue growth at 52% year over year. The company issued a strong 2025 revenue guidance, exceeding analysts' estimates with a forecasted 31% growth. This led to a significant surge in its stock price, with shares jumping over 20% in extended trading sessions following the earnings release.
As always, there is significant dilution (7% YoY). This level of dilution seems unnecessary and may reflect management’s excessive compensation practices, particularly those of CEO Alex Karp.
Analysts’ recommendations
Feb, 05. Citigroup. Hold. $42 —> $110
Feb, 04. Bank of America. Buy. $90 —> $125
Feb, 04. UBS. Hold. $80 —> $105
Feb, 04. Wedbush. Buy. $90 —> $120
Feb, 04. DA Davidson. Hold. $47 —> $105
Feb, 04. Mizuho. Sell. $44 —> $80
Feb, 04. RBC. Sell. $11 —> $40
Feb, 04. Deutsche Bank. Sell. $35 —> $50
Feb, 04. Cantor Fitzgerald. Hold. $72 —> $90
Feb, 04. Jefferies. Sell. $28 —> $60
Feb, 04. Baird. Hold. $70 —> $100
Feb, 04. HSBC. Hold. $38 —> $96
Feb, 04. Morgan Stanley. Sell —> Hold. $60 —> $95
My analysis
It is frustrating to see so many investors buying into Palantir without fully understanding what the company does. Essentially, they sell a platform that allows companies to integrate, store, and analyze their data, making them a competitor to Snowflake or Microsoft Fabric, though with a heavy dose of storytelling.
The excessive stock-based compensation (SBC) and management’s aggressive dilution remain significant drawbacks.
Naturally, the company is overvalued. The market is displaying clear signs of bubble-like behavior, as I clearly described in this article.
I am not saying Palantir has a flawed business model; rather, the risk-reward ratio is clearly unfavorable for investors. Justifying its current valuation requires highly optimistic assumptions just to break even over the next 10 years.
It is certainly possible for the stock to reach $200 or even $300, but the higher it climbs, the harder the fall.
Technical analysis
I have defined three buying zones that I find interesting for long-term investments during pullbacks. While these zones may not be reached, I am prepared for a market (or stock) consolidation to seize long-term opportunities. For me, this approach offers a better risk/reward ratio.
Of course, this is just my opinion, and I am sharing it with you, but each investor should decide on their own investment style. With that said, here are my three buying zones for Palantir.
Buying zone 1. $44
Buying zone 2. $27
Buying zone 3. $21
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Used source: Marketscreener.com. Affiliate link just here
Do you even think it will get to $44 again?
I 100% agree (reached the same conclusion). Adding to your points, I find it ridiculous that the market is paying a 560x multiple (FY2024) on a company's earnings (non-adjusted), especially when 42% of those earnings come from interest income ...
btw love your content!