Palantir Technologies Inc. shares have surfed the wave of Wall Street enthusiasm for generative artificial intelligence this year, but analysts say investors will have to wait to see that opportunity fully manifest in the company’s financials.
The software company essentially matched expectations with its latest earnings Monday afternoon, though Palantir’s PLTR, -1.15% growth on the whole decelerated.
“We expect the [company] to prioritize AIP development and penetration among new and existing accounts, with less emphasis on monetization in the near-term,” wrote Mizuho analyst Matthew Broome, referring to the company’s Artificial Intelligence Platform.
Such a strategy is “justifiable, as value is being created, and the longer-term opportunity is likely significant,” he continued. “However, given the large legacy government and commercial businesses are already experiencing uneven execution and significant overall deceleration, this clearly creates a risk of distraction, and we expect some patience will be required for the benefits of AIP to be reflected in PLTR’s financial results.”
Broome has a neutral rating on the stock, and he lifted his price target to $16 from $14 Tuesday.
Palantir shares were off 3% in Tuesday’s premarket action.
Jefferies analyst Brent Thill called the lack of meaningful upside in the second quarter “underwhelming,” while noting that Palantir shares trade as “one of the richest assets in software,” with a valuation of 15 times expected 2024 revenue.
“We believe the commercial business will be critical in driving the next leg of growth for PLTR and will look to see more consistent execution here,” Thill wrote, after the commercial business saw revenue growth slow to 10% on a year-over-year basis from 15% in the first quarter.
While he noted management’s assertion of high customer interest in the AI Platform, Thill said “no strategy has been disclosed on monetization, nor the timing of the monetization.”
He has a hold rating and $17 price target on Palantir shares.
DA Davidson’s Gil Luria noted that Palantir barely upped its revenue forecast for the full year, despite investor enthusiasm about the potential AI opportunities ahead. “We believe the company still has significant work to translate AI demand to growth acceleration,” he wrote, while maintaining a neutral rating but increasing his price target to $15 from $8.50.
Raymond James analyst Brian Gesuale was more upbeat.
“Fundamentals are accelerating and while there is a high 4Q hurdle, the story is clearly shifting to the AI opportunity and the long term implications of PLTR’s strategy of going deep on technology and evolving into a leading AI solutions provider,” he wrote. “Profitability is ahead of schedule, [free cash flow] is tracking better than expected, there is $3 billion on the balance sheet, and there is enthusiasm that the company may be eligible for S&P 500 inclusion in the coming quarter.”
He has an outperform rating on Palantir’s stock, and he boosted his price target to $22 from $18 after the report.
Shares of Palantir have surged 180% so far in 2023, as the S&P 500 SPX has increased 18%.