Prediction: Palantir Stock Will Soar After Dec. 13 (There's a Catch Though)

Importantly, while I believe Palantir will be added to the Nasdaq-100 and that shares will soar following the announcement on Dec. 13, that prediction comes with an important catch. I also think the stock is headed for a serious downward correction at some point in the future because the valuation is unsustainable.

Palantir specializes in data analytics and artificial intelligence (AI) software. Its Foundry and Gotham products let commercial organizations and government agencies integrate complex data and machine learning (ML) models into analytical applications that improve decision-making. But AIP transformed the business following its release last year.

AIP stands for artificial intelligence platform. That product brings support for large language models to Gotham and Foundry, which empowers customers to apply generative AI to their operations. Importantly, Forrester Research recently recognized Palantir as a leader in AI/ML platforms, a market forecast to grow at 41% annually through 2028, according to the International Data Corp.

That bodes well for Palantir’s business, but not even the best business is worth buying at any price. Wall Street expects Palantir’s adjusted earnings to grow at 27% annually through 2025. That estimate makes the current valuation of 220 times adjusted earnings look unreasonable by any standard. It would be hard to rationalize even if earnings were projected to grow at 50% annually.

Indeed, among the 20 analysts following Palantir, the median 12-month target price is $38 per share, which implies 50% downside from the current price of $76.50 per share. Median refers to the middle value, which means half of analysts think the stock will plunge more than 50% in the next year.

In fact, even the highest price target of $75 per share implies 2% downside. That means every last analyst following Palantir thinks the stock is overvalued right now. That is a pretty good reason to avoid the stock, even though I think shares will soar following the company’s likely addition to the Nadaq-100 later this month.

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Trevor Jennewine has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.

Prediction: Palantir Stock Will Soar After Dec. 13 (There’s a Catch Though) was originally published by The Motley Fool