Palantir is going to drop like a rock, RBC says

RBC Capital Markets is flagging what it sees as growing downside risk for Palantir Technologies (Palantir Technologies Stock Quote, Chart, News, Analysts, Financials NASDAQ:PLTR) ahead of the company’s earnings report on Monday, citing stretched valuation and signs of slowing fundamentals.

In a Jan. 27 note led by RBC Capital Markets analyst Rishi Jaluria, the bank reiterated its “Underperform” rating and $50.00 price target on Palantir shares. That target implies potential downside of roughly 70% from recent levels, following a 121% rally over the past 12 months, even as the stock is down about 9% over the past three months.

“Absent a substantial beat-and-raise quarter elevating the near-term growth trajectory, valuation seems unsustainable…”

Jaluria said the risk-reward profile looks unfavourable at current valuations, arguing that Palantir now screens as the most expensive name in RBC’s software coverage universe. “Absent a substantial beat-and-raise quarter elevating the near-term growth trajectory, valuation seems unsustainable,” he wrote.

RBC also pointed to emerging softness in government-related activity. Based on the bank’s internal government contract tracker, Jaluria said estimated qualified contract value and net new annual contract value appear to be declining. That suggests fewer late-stage deals in the pipeline and lower-than-expected incremental revenue contribution from new awards.

On the commercial side, Jaluria said recent channel checks indicate rising skepticism around the durability of Palantir’s enterprise customer base, with some customers reassessing usage or migrating away from the platform.

The analyst  said the firm will be watching closely for any signs of improvement in commercial performance, including better net revenue retention or evidence of meaningful monetization from Palantir’s Artificial Intelligence Platform (AIP), but added that competition remains intense.

The analyst also highlighted sentiment risk among Palantir’s large retail investor base. With roughly $6-billion in cash on the balance sheet, Jaluria said some investors appear increasingly frustrated by the lack of a clear capital return strategy. He added that continued uncertainty around capital allocation, combined with ongoing concerns related to privacy and ethics, could contribute to valuation multiple compression over time.

Overall, RBC said that while Palantir remains a popular name amongst retail investors, the combination of elevated valuation, moderating growth indicators, and rising investor scrutiny leaves the stock vulnerable if upcoming results fail to materially exceed expectations.

Disclosure: Cantech Letter’s Nick Waddell owns Puts on PLTR.

-30-