Palantir Technologies Inc. (NYSE: PLTR) continued its downward slide on Tuesday, dropping as much as 6.4% before slightly recovering to a 3.9% decline by midday. The AI-driven data analytics giant has now fallen more than 30% from its recent highs, sparking concerns about its rich valuation.
Wall Street Warnings: Is Palantir Overpriced?
The latest drop came after Jefferies analyst Brent Thill reiterated his “underperform” rating on the stock. Despite being impressed by Palantir’s cutting-edge AI technology and the high return on investment (ROI) showcased at the recent AIPCon customer event, Thill maintained his $60 price target. This suggests that Palantir stock could still plummet another 31%, considering Monday’s closing price of $83.87.
Thill argued that Palantir, despite its strong growth prospects, is trading at unjustifiably high multiples. The stock, even after its recent correction, is still valued at a staggering 150 times next year’s projected earnings, making it one of the most expensive AI stocks in the market.
Palantir’s Parabolic Rally Hits a Wall
Over the past three years, Palantir has delivered an eye-popping 575% gain, making it a standout performer in the AI sector. However, the recent sell-off signals that the stock may have run too far, too fast.
Despite the company’s 80.25% gross margin and its dominant position in government contracts and enterprise AI solutions, some investors are cashing in on profits, citing the lofty valuation and recent insider selling activity.
Insider Sales Raise Red Flags
Adding to investor concerns, Thill pointed out recent insider sales, which can be interpreted as a lack of confidence in the stock’s near-term price appreciation. Insider selling often triggers bearish sentiment, especially when a stock is already trading at a premium.
What’s Driving the Bearish Sentiment?
- High Valuation: Even after a 33% correction, Palantir is still trading at 150x forward earnings, making it vulnerable to further declines.
- Profit-Taking: With a 575% gain over three years, some investors are locking in profits.
- Insider Selling: Recent insider sales have added to concerns, signaling potential overvaluation.
- Macroeconomic Pressures: Broader market volatility and fears of rising interest rates could put pressure on high-multiple growth stocks like Palantir.
Is Palantir Stock Due for a Bigger Correction?
While Palantir remains a best-in-class AI provider, the stock’s current valuation makes it risky in the short term. With analyst warnings and continued downward momentum, the market may need to see either stronger-than-expected earnings growth or a more reasonable valuation before the stock stabilizes.
For now, PLTR investors should brace for potential volatility as Wall Street questions whether the company’s lofty valuation can be justified by its growth trajectory.
