Wall Street analyst downgrades Palantir stock forecasts 50% drop

Palantir’s (NYSE: PLTR) surging stock price to new highs may not last long after investment banking giant Jefferies downgraded the equity due to concerns over growth prospects.

Jefferies’ analyst Brent Thill downgraded the stock from ‘Hold’ to ‘Underperform,’ warning that the firm might not meet the growth expectations implied by its current valuation, he said in an investor note on November 7.

Thill maintained his price target of $28, emphasizing that Palantir faces a significant challenge justifying its high revenue multiple. If this target is attained, it would reflect a 50% drop in PLTR from the current value. 

“We are downgrading PLTR to Underperform due to an unsustainable valuation and will await a more favorable entry point. Our $28 price target reflects a 19x CY25E revenue multiple, compared to the large-cap average of 12x,” the analyst said. 

The expert observed that Palantir is currently trading at 38 times its estimated 2025 revenue—a valuation Jefferies says is double that of the following most expensive software stock, CrowdStrike (NASDAQ: CRWD).

According to Jefferies’ research, for Palantir to sustain such a premium, it would need to grow revenue by 40% annually for the next four years, a target Jefferies finds unlikely to achieve consistently.

An increase in insider sales, mainly through 10b5-1 trading plans, has added to Jefferies’ concerns. These plans allow company insiders to schedule share sales over time, often indicating that executives see limited upside at current price levels. Notably, the company’s CEO, Alex Karp, is among the executives on a recent selling spree.

Wall Street increasingly cautious on PLTR

Other Wall Street analysts have also questioned whether Palantir’s rapid rise is justified. Mizuho’s Dan Moskowitz highlighted that PLTR’s valuation is over three times the average of other enterprise software stocks, maintaining a ‘Sell’ rating despite raising his price target from $30 to $37, which is still 46% below current levels.

Monness analyst Brian White was even more critical, labeling Palantir’s valuation as ‘the richest’ in his coverage, noting a 39% premium over Nvidia (NASDAQ: NVDA) despite Palantir’s slower growth.

White questioned the company’s focus on AI, describing recent hype as ‘another round of AI propaganda.’ He retained a ‘Sell’ rating with an $18 target.

These analyst concerns are piling over PLTR’s sustainability in the recent AI-fueled rally. To this end, some observers have pointed out that the stock may have become too expensive after hitting $40, anticipating a near-term correction.

Elsewhere, Wedbush analyst Dan Ives offered a dissenting opinion, raising his price target from $45 to $57. He cited growing confidence in Palantir’s AI strategy and enterprise demand. Based on the company’s potential, Ives has dubbed the software giant the ‘Messi of AI.’

PLTR stock price analysis 

PLTR is witnessing meteoric growth, with the stock hitting new highs. This growth is powered by the company’s Q3 2024 earnings and strong guidance for the coming quarter. 

For the three months ending September 24, Palantir reported revenue growth of 30% year-over-year (YoY), reaching $725 million, while net income stood at $144 million—its largest profit in two decades.

At the close of the last trading session, PLTR was valued at $55.53, up over 8%. To put this recent growth into perspective, the equity has rallied by 234% in 2024, outperforming AI heavyweight Nvidia, which has gained 202% year-to-date.

Given that most analysts are signaling an alarming outlook for PLTR, the stock’s momentum indicators, particularly the relative strength index (RSI), may support this perspective. 

The RSI has reached 80.53, above the typical overbought threshold of 70, signaling the stock might be in overbought territory with a potential pullback or consolidation in the horizon.