Shares of Palantir (NASDAQ:PLTR | PLTR Price Prediction) are having quite a rough year, now down 27% year to date. Despite the nasty chart and short bet from none other than Dr. Michael Burry of The Big Short fame (a man who’s been absolutely crushing it with his bearish bets lately!), a number of analysts still expect big things from the company and its stock over the year ahead.
The vicious bear market might still be in the driver’s seat, but if you’re still a believer of the hyper-growth narrative and CEO Alex Karp, perhaps Palantir stock is the name to watch closely for the second half of the year, as the AI trade faces a reshuffling of the cards, so to speak, with software players taking hits to the chin while the real AI application plays look to be handsomely rewarded. And, of course, in the background, we’ll have the CapEx-heavy companies and overbought semiconductors selling off.
All of this action within the AI trade makes it feel like we’re in a rational market; at least that’s how I view it, as opposed to an uncontrollable AI bubble that will end with a 2000-esque implosion.
Big expectations come with August earnings
As Palantir marches into its quarterly earnings in the first week of August, there’s going to be no shortage of action when it comes to the name. It’s going to be posting some spectacular results. That much is a given. But whether it’s enough to move the needle remains the big question. I’d look more carefully into guidance moving forward, which seems to matter more than even the biggest blowout one could imagine.
One notable Wall Street pro, Tyler Radke, over at Citi recently hiked estimates on the firm ahead of earnings, shining a light on the commercial division. Undoubtedly, there’s quite a bit of commercial momentum, but the big question is whether the pace of adoption in the enterprise is fast enough to justify that still ridiculously hefty price of admission.
The stock looks so expensive that maybe the bull case is already an expectation, even after the latest nasty slide.
Since that last blowout quarter couldn’t do it for Palantir stock, I hesitate to be a buyer of shares going into its coming earnings, even as more analysts point to an even bigger beat. Indeed, that raising of the bar probably might be the new line in the sand. If we’re dealt another quarter that’s in the ballpark of the last one, maybe Palantir stock might have what it takes to bottom out and move on.
Maybe AIP’s commercial engine could help shares bottom out
Certainly, the AI Platform (AIP) is only scratching the tip of the iceberg when it comes to the enterprise. And given that note that Alex Karp wrote after some magnificent results, perhaps it’s him that will say “told ya so” should another jaw-dropper be in the cards for August. In my view, Radke’s $200 per-share price target on Palantir is realistic, provided the firm can keep proving its doubters, like Burry, wrong.
While I don’t doubt the company’s ability to keep posting explosive sales growth at an enviably high margin, I can’t say I know how if another quarter of that kind of strength is enough to justify a 138.0 times trailing price-to-earnings (P/E) multiple.
If Palantir posts a number that causes an even more drastic raising of the bar by Radke and other analysts, only then do I think that a big earnings beat will be enough to power the stock to higher levels. Either way, it seems like the AIP bootcamp efforts could really fast-track enterprise adoption.
The bottom line
Despite the potential for a commercial surprise, I’m staying on the sidelines because I don’t know how durable the company’s moat is and whether it’s wide enough to defend these obscene growth metrics as other firms look to join Palantir, such that it no longer becomes that “N of 1.”
The company’s ontological moat looks incredibly wide now, but will it stay that way as the firm looks to pick up momentum on the commercial side? I have no idea. Time will tell.
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