Analysts see high risk in Palantir shares. Why do they advise buying them?
Shares of the civilian and military software developer have soared more than 100% this year, but Piper Sandler still sees upside potential for them
Piper Sandler recommended investors to buy Palantir shares, despite the fact that their price has already doubled since the beginning of the year. The bank analyst warned that the developer's securities are subject to "hyper-volatility" and remain a high-risk asset. Nevertheless, he believes Palantir will be one of the beneficiaries of the AI boom and will be able to sustain revenue growth in excess of 30% per year.
Details
Piper Sandler initiated analyst coverage on shares of Palantir, a software company that develops AI for military and civilian applications, with an Overweight rating ("above market," equivalent to a "buy" recommendation), wrote CNBC. Piper Sandler set a $175 target price on Palantir shares, suggesting upside potential of about 13% relative to the closing price in recent trading.
After Piper Sandler's recommendation, Palantir shares rose almost 3% in early trading on July 25. They are up 105% so far this year. Piper Sandler analyst Brent Braselin warned that Palantir is trading at a significant premium and "remains a high-risk investment," reported Investing.com. According to the analyst, Palantir shares are characterized by "hyper-volatility with price drawdowns of 20-29%."
So why does Piper Sandler advise buying?
The analyst singled out Palantir as one of the market leaders poised to benefit from the current AI boom. "The company has a unique growth and margin model that, if proven sustainable, could lead to annualized revenue of $24 billion by 2032 by growing share in two markets (government and commercial sectors - Oninvest) with more than $1 trillion each," Braselin wrote.
The analyst believes that the ongoing boom in the artificial intelligence market will be an important catalyst for Palantir and that the company could be one of its long-term beneficiaries.
"We see the company as a long-term winner in the artificial intelligence revolution. The company has several key drivers that can drive annual revenue growth in excess of 30% while maintaining free cash flow margins above 40%. While the company's culture, leadership and path may be unconventional, its impact on the AI revolution could be long-lasting," Braselin wrote.
In the second quarter of this year, interest in Palantir's products, which analysts measure by the growth in online traffic to its platforms and websites, increased 144% year-over-year, up from 62% previously. That pace is comparable to other long-term AI leaders such as CoreWeave, ChatGPT, Anthropic, Anduril, Shield AI and Axon, CNBC notes.
Palantir shares could also continue to rise if the company maintains a compound annualized compound annual growth rate (CAGR) of at least 30% in its two segments - government and commercial in the US, the analyst said.
"Maintaining a CAGR above 30% in the U.S. public sector and commercial business is realistic given the company's previous results and two large markets of more than $1 trillion each," Braselin added.
What else is Wall Street's advice to investors?
Most analysts who follow Palantir are more reserved. According to data from MarketWatch, the most popular recommendation is to hold the stock: about 60% of analysts hold it. About every fourth recommends to buy (Buy and Overweight ratings), the rest - to sell (Sell). At the same time, the average stock price target is almost 38% below the last closing price.
Earlier this week, JPMorgan named Palantir among 20 "overheated" stocks that are already best avoided. According to the bank's analysts, investors are too actively buying risky securities with high volatility (so-called high beta - stocks with beta coefficients above 1, which react more strongly to market fluctuations). According to JPMorgan, concentration in this segment has reached an all-time high - the 100th percentile. This has happened only a few times: during the dot-com bubble, immediately after the 2008 crisis and on the eve of the collapse of global markets in February 2018. At the same time, the surge in interest in such stocks was rapid: in just three months, the concentration rose from the 25th to the 100th percentile - the sharpest jump in the last 30 years.
This article was AI-translated and verified by a human editor
