Palantir Valuation Offers ‘No Room for Error’ – Raymond James

Raymond James has downgraded Palantir’s stock from Outperform to Market Perform, expressing concerns about its high valuation despite ongoing enthusiasm for its long-term potential in artificial intelligence (AI).

The firm notes that Palantir’s stock has increased by over 120% this year and has grown sixfold over the past two years, resulting in a valuation that allows little margin for error. Currently, Palantir’s shares are valued at 26.1 times its projected FY25 sales, making it the highest valued among comparable software companies.

Raymond James pointed out that Palantir’s inclusion in the S&P 500 on September 9th triggered a 23% increase in its stock over the past two weeks. However, the firm argues that more significant positive revisions to earnings estimates are necessary to support further upside.

The company highlighted Palantir’s unique three-phase evolution since going public: an initial rise from $9 to approximately $40 between 2019 and 2020, a decline from $39 to $6 during the 2020-2023 period due to revenue slowdown, and a new growth phase that started in May 2023, largely fueled by breakeven performance and AI opportunities.

Palantir’s AI platform (AIP) has notably strengthened its fundamentals, with U.S. commercial growth accelerating to about 80%. Despite forecasting a strong 21% revenue growth for Palantir in 2025 and 2026, Raymond James believes that the stock’s current premium valuation provides no cushion for any errors.

The firm also pointed out that Palantir is trading significantly above its historical sales average of 14.9 times and its implied multiple of 10.4 times based on a Rule 40 regression analysis. Although Palantir is well-positioned for future growth, Raymond James cautions that the company’s “rich valuation” necessitates flawless execution to meet elevated investor expectations.