Lofty Valuation Makes Palantir Shares "Unsustainable", Wall Street Flood to Issue Warnings
1min read The best-performing AI star in 2024 is now facing Wall Street downgrades.
Morgan Stanley has issued a cautionary outlook for Palantir Technologies on Monday, assigning an underweight rating to the stock following a record-breaking 2024 driven by artificial intelligence advancements.
Analyst Sanjit Singh noted that despite Palantir's early strides in AI, the risk-reward ratio appears skewed to the downside. Previously, Palantir was not rated by Morgan Stanley.
Singh acknowledged the company's strong execution and momentum but argued that the current premium valuation more than reflects its success. He set a $60 price target on Palantir, implying a potential 21% downside from Monday's closing price. The stock soared 341% in 2024, making it the best-performing stock in the S&P 500 index.
Singh expressed concerns about the sustainability of this momentum, given the premium valuation of the shares. He believes that as enterprise capabilities in building AI applications improve, it may become challenging for Palantir to maintain its current level of momentum, creating downside risks.
2025 revenue estimates are only 10% higher compared to the beginning of 2024, Singh added. More surprisingly, even underneath the narrow estimate revisions, the commercial business – where most of the AI narrative is supposed to play out — has contributed less to the 2025 revenue estimate revisions than the government business.
Jefferies analyst Brent Thill also shares a bearish view, expressing concerns that Palantir's stock has rallied to unsustainable valuation levels driven by AI euphoria and retail trading momentum. Thill believes that while Palantir has a long-term AI technology advantage and potential to gain market share, the current valuation is unsustainable.
Palantir has traditionally provided data analytics tools to government customers for intelligence gathering, counterterrorism, and military purposes. The company now aims to leverage generative artificial intelligence to drive growth in the U.S. commercial market. However, the recent surge in stock price, particularly following Donald Trump's presidential election win, raises questions about the sustainability of its valuation.
Both analysts agree that while Palantir has significant potential, the current market enthusiasm and premium valuation present substantial risks for investors moving forward.
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