Palantir Stock Downgraded

Investing.com — Palantir (NYSE:PLTR) stock has been downgraded from Hold to Underperform at Jefferies due to concerns over its high valuation following the latest rally.

The price target was also reduced to $28, based on 19 times the estimated 2025 revenue, significantly higher than the large-cap average of 12 times revenue.

Analysts note that PLTR is now the most expensive software name. The downgrade occurs despite acknowledging that Palantir's fundamentals remain intact, with the company demonstrating four quarters of accelerating growth.

Jefferies recognized Palantir's capability of delivering 30% year-over-year revenue growth and a 59% increase in Remaining Performance Obligations (RPO), which measures future revenue under contract but not yet recognized. However, the investment bank expressed skepticism about the company's ability to sustain such a high growth rate moving forward.

Jefferies pointed out that Palantir's year-to-date outperformance has primarily been driven by an expansion in its next twelve months (NTM) revenue multiple, which has risen by 176% year-to-date, making it the only stock with triple-digit multiple expansion. In contrast, there has only been a 9% increase in CY25 revenue estimates for the same period.

The report also noted a rise in insider selling through 10b5-1 plans, revealing that Palantir's CEO sold over $1.2 billion of stock in the past three months, accounting for about 14% of his stake.

Jefferies expressed concern that the high percentage of shares held by retail investors could lead to swift and significant multiple compression if the stock were to lose its appeal. Approximately 50% of PLTR's shares outstanding are held by retail investors.

This shareholder structure presents a double-edged sword: while a larger retail base could further fuel multiple expansion on no news or changes to fundamentals, these dynamics could also prompt very quick and significant multiple compression if the stock loses favor.

Jefferies concluded that for Palantir to grow into its current multiple and maintain its stock price, it would need to accelerate growth to 40% over the next four years and trade at 12 times its estimated 2028 revenue. The firm regards this scenario as unlikely, suggesting limited upside for the stock based on these projections.

Despite these concerns, Palantir shares surged more than 30% across the last five trading sessions, propelled by a robust earnings report.