Concerns surrounding Palantir Technologies’ stock continue to persist, despite the company outperforming third-quarter estimates and increasing its full-year guidance. Industry expert Gil Luria, head of Technology Research at DA Davidson, provided insights into the complexities surrounding the company’s performance.
Luria praised the company’s results, stating they were “spectacular” and far exceeded expectations. He highlighted that Palantir boasts a run rate of over $4 billion, with a remarkable growth rate of 63%. The company has also more than doubled its commercial business. Notably, some clients invest substantial amounts—up to nine figures—in Palantir’s software, underscoring its strong foothold in the market. Luria pointed out that the government sector is increasingly relying on Palantir, with a 50% growth noted in government contracts.
However, even against this backdrop of positive fundamental results, Palantir’s stock price took a downturn. Luria suggested that this could be attributed more to a “risk-off vibe” in the market rather than any specific issues related to Palantir itself. He noted that many companies with high valuations and heavy exposure to AI were also experiencing declines.
When questioned about the company’s high valuation metrics, including a price-to-sales ratio of around 85—the highest in the S&P 500—Luria acknowledged the challenges in justifying such figures. He explained that valuations based on traditional metrics like price-to-earnings or enterprise value to cash flow do not apply neatly to Palantir, given its unparalleled growth and performance in the software sector.
Investors seem to buy into the expectation that Palantir’s growth trajectory will continue into the foreseeable future. Yet the high multiple raises a significant question regarding its sustainability. Luria emphasized that investors gravitating toward Palantir might be doing so with a belief in its future potential rather than its current financial metrics, pointing out the arbitrary nature of high valuation numbers.
As the stock declines despite stellar earnings, the situation reflects the tricky dynamics present between market sentiment and fundamentals, highlighting the challenges investors face when weighing growth prospects against lofty valuations.
