Palantir stock surge shows investors haven’t had enough of AI — yet

Palantir (PLTR) stock soared more than 25% Tuesday morning as investors cheered the defense software maker's latest advances in artificial intelligence.

“I have never before seen the level of customer enthusiasm and demand that we are currently seeing from [artificial intelligence platforms] in the commercial sector in the United States,” Palantir CFO Ryan Taylor told investors during the company's earnings conference call Monday evening.

The software company's artificial intelligence platform, or AIP, was mentioned nearly 50 times throughout the call. And according to Palantir, that's one of the main reasons it expects U.S. commerce revenue to grow by nearly 40% in 2024.

It's also why the stock has surged more than 100% over the past year, as AI euphoria has sent many tech stocks roaring. In the middle of claims shares of Denver-based Palantir were already overvaluedTuesday's market action is the latest sign that investors can't get enough of the AI ​​trade – even though Wall Street believes parts of the trade have broken through any fundamental support.

“We are incredibly bullish on Palantir,” Morningstar equity analyst Malik Ahmed Khan told Yahoo Finance Live. “If you look at our forecasts, you will see that we are above consensus on profitability, revenue, etc.”

“At the same time,” he added, “we cannot rationalize Palantir’s current valuation in the base case.”

Jefferies equity analyst Brent Thill, who entered the earnings report with a sell rating on Palantir, acknowledged in a research note after the release that AIP's growth exceeded expectations. But even after upgrading the stock to a Hold rating, Thill still warned about the cost of the stock.

“The biggest concern is the valuation with [the] the shares trade at a 23% premium to the large-cap average,” Thill wrote.

It's not just Palantir that has a new AI bid in hopes of starting 2024. On Monday, Goldman Sachs raised its price target on Nvidia (NVDA) stock by 625 $ to $800, citing among other things “strong demand for AI”. The stock jumped nearly 5% to reach a new all-time high.

Additionally, IBM (IBM) stock is up about 15% over the past month after demand for AI fueled a surge in revenue. AI leader Microsoft (MSFT) saw a muted earnings reaction, although the company credited AI services with 6 percentage points of Azure's revenue growth. But in fairness, the stock is also trading just shy of an all-time high and is up over 10% in the past month. The same could be said for AMD (AMD), which hasn't soared on AI-driven profits, but is up more than 25% in the past month and nearing an all-time high.

These developments raise the question for investors: When will AI euphoria reach a price that investors are no longer willing to pay? Morningstar's Khan said that could depend on how the U.S. economy performs for the rest of the year.

“It’s possible that if the economy remains strong, clients will continue to invest in some of these new growth areas,” Khan said. “At the same time, if we are facing a recession or something else in the broader economy and the economy is not as strong at that point, you will probably ask investors to come back in of their investments.”

The Palantir Technologies logo is displayed on a shipping container at the company's booth during the Consumer Electronics Show (CES) in Las Vegas, Nevada, January 5, 2023. (PATRICK T. FALLON/AFP via Getty Images) (PATRICK T. FALLON via Getty Images)

Correction: A previous version of this story misspelled the name of Palantir and investment research firm Morningstar. We regret the error.

Josh Schafer is a reporter for Yahoo Finance. Follow him on @_joshschafer.

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