TLDR
- Palantir (PLTR) stock dropped 4.1% on Tuesday as tech stocks pulled back from recent highs
- The Senate removed AI regulation provisions from Trump’s tax bill, allowing states to create their own AI rules
- Top investor PropNotes issued a Strong Sell rating, calling the 100x sales valuation “patently absurd”
- Stock-based compensation costs now approach $750 million while net income is only $570 million
- Wall Street consensus remains Hold with an average price target of $105.29, suggesting 19% downside
Palantir Technologies shares stumbled Tuesday, falling 4.1% as investors took profits following the stock’s meteoric rise. The decline came during a broader tech sector pullback that saw the Nasdaq drop 0.8%.
The data analytics company has been the S&P 500’s top performer over the past year, surging 405%. Year-to-date gains still sit at an impressive 73%.
Tuesday’s sell-off coincided with regulatory developments in Washington. The Senate approved Trump’s tax bill but stripped out provisions that would have blocked states from creating their own AI regulations.
This regulatory shift spooked investors who had been banking on a lighter federal oversight approach. The prospect of a patchwork of state-level AI rules adds uncertainty to the regulatory landscape.
The stock trades at eye-watering multiples that make even small setbacks painful. Shares currently trade at roughly 83 times expected sales and 234 times projected earnings.
Analyst Raises Red Flags
Top-ranked investor PropNotes delivered a scathing assessment of Palantir’s valuation, slapping the stock with a Strong Sell rating. The analyst acknowledged the company’s strong market position but questioned whether any growth story justifies current prices.
“Paying 100x sales for a company appears patently absurd,” PropNotes stated. The firm generates $3.1 billion in trailing revenue but carries a market cap near $310 billion.
PropNotes highlighted troubling trends in the company’s financial metrics. Gross margins have contracted since mid-2024, while EBITDA and net income margins have stagnated over recent quarters.
Stock-based compensation presents another headwind. These costs have climbed to nearly $750 million, creating what PropNotes calls “massive headwind for shareholder appreciation.”
The compensation expense is particularly striking when compared to Palantir’s $570 million in net income. This means the company is effectively paying out more in stock compensation than it earns.
Wall Street Remains Cautious
PropNotes isn’t alone in questioning the valuation. Wall Street analysts maintain a Hold consensus rating on the shares.
The rating breakdown shows 9 Hold ratings, 4 Sells, and just 3 Buy recommendations. The average price target of $105.29 implies 19% downside from current levels.
Despite the valuation concerns, few question Palantir’s product quality or market opportunity. The company’s platforms integrate seamlessly with existing technology stacks, enabling detailed data analysis and decision-making.
Both commercial and government clients have shown strong adoption of Palantir’s offerings. The company has carved out a strong position in the AI software space.
But even the strongest fundamentals may not justify the current price tag. The valuation leaves little room for error or execution missteps.
Any disappointment in growth rates or profitability could trigger sharp declines. The stock’s growth-dependent valuation creates inherent volatility that investors must consider.
Palantir continues to benefit from AI tailwinds and strong customer demand. However, the gap between business performance and stock price has grown increasingly wide, creating the conditions for Tuesday’s pullback.
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