Palantir Stock Analysis: 3 Reasons to Pause Before Taking the PLTR Plunge

The Peter Thiel cofounded data analytics firm, Palantir (NYSE:PLTR), has come a long way since its founding in 2003. In the early days, it received crucial funding from the U.S. Central Intelligence Agency’s venture capital arm, In-Q-Tel. Palantir stock has benefitted ever since.

With the “war on terrorism” going on, the firm had aimed to develop data integration and analysis software for intelligence and defense sectors. Palantir’s first data analytics product, Palantir Gotham, was for made for counter terrorism purposes.

Since then, Palantir has developed software — namely Palantir Foundry — for a plethora of industries, including health care, financial services, manufacturing, and energy. Last year, Palantir announced its AI Platform amid all the market noise on the potentialities of new AI technologies.

After seeing its share price surge since that point, Palantir Stock has entered a cooling period. Below are 3 reasons why it could remain in that state for the near-term.

Palantir’s AI Platform: Cash-cow or hype?

Palantir released the AI Platform back in the second quarter of 2023. Investors were quite pleased with the announcement as equities markets in general craved any developments firms had been embarking upon with novel generative AI technologies.

In essence, the AI Platform layers in artificial intelligence and machine learning tools and the most up-to-date large language models into Palantir’s two major products: Gotham and Foundry.

Through AIP, customers can deploy these LLMs on to their own private networks, meaning there is no special contingency for hosting data on a separate cloud network.

Palantir’s fourth quarter earnings results for 2023 not only saw the data analytics firm report its first year of GAAP profitability, but also highlighted the rapid acceleration in Palantir’s commercial business because of robust demand for its AI capabilities.

Unfortunately, full-year guidance after the release of Palantir’s first quarter earnings results for 2024 did not reflect the growth investors had been expecting. This perhaps shows that the AI Platform will take some time to scale and will likely not be a major growth catalyst or cash-cow for the time being.

Retail optimism on stocks could breathe life into Palantir Stock

As we head into the summertime, a number of big U.S. investment banks are predicting a resurgence of retail investors into U.S. equities markets. According to Bloomberg, Goldman Sachs’s managing director for its Global Markets division, Scott Rubner, says he is “seeing a re-emergence in retail traders during the summer, they tend to come around in July.”

Retail investors pouring back into the market could have positive implications for Palantir stock. The company has made a big name for itself among everyday investors.

Bullish sentiments on the threads of the subreddit r/wallstreetbets, for example, continue unabated. If retail investors do make an impressive comeback, PLTR could definitely see some strong gains.

High valuation remains a price growth obstacle

However, there are still impediments to Palantir’s future share price growth, namely its already stretched valuation. The data analytics firm’s trades at 67.7x forward earnings.

To give you some perspective, Palantir essentially trades at a higher multiple than AI behemoths like Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT), and Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL).

While powerful and full of utility, Palantir’s AI Platform is not experiencing the jaw-breaking growth that would warrant its high valuation. This could foment additional selling pressure for the firm’s shares going forward.

On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.