Morgan Stanley still skeptical on Palantir, sees 25% drop
Analysts at the bank rated the stock “underweight” and slapped a price target of $60 on the shares.
Morgan Stanley analysts still think that Palantir shares are overvalued after the nearly 390% rocket ride they’ve had over the past 12 months.
In a report Monday, Morgan Stanley analysts admitted getting some things wrong when they cut their rating on the shares to “underweight” in late August 2023. Palantir’s sales to corporations have been better than expected, thanks to its Artificial Intelligence Platform (AIP) offering, as well as better deals than expected with the US government. Palantir also kept better control over costs than they thought likely, boosting free cash flow.
Even so, they say, there is an insane amount of growth baked into the shares at their current prices:
“While acknowledging this positive inflection and looking for ways to get more constructive on shares, the lack of visibility of material estimate revisions leaves PLTR trading too far ahead of the company's intrinsic value to justify a rating upgrade.”
Of course, given the mood of the markets, fundamentals seem relatively unimportant to traders. In other words, the stock can keep outrunning the basic business logic on sheer momentum.
In their note, Morgan Stanley analysts acknowledged that some optimism on Palantir stems from links between the company and the incoming Trump admin.
“Bullish investors have pointed to several ties between Palantir and the incoming Trump administration as potential tailwinds for the stock going into next year. The ties investors point to range from 1) Palantir being co-founded by Peter Thiel, who hired Vice President-elect JD Vance at his venture capital firm Mithril Capital and was reportedly a major donor to his past political campaigns, to 2) Elon Musk on December 8 sharing a presentation by Palantir CEO Alex Karp on X with the words ‘based.’
We see a risk of any such announcements leading shares higher in the near-term.”
Their price target for the defense-tech juggernaut is $60 over the next 12 to 18 months, or about 25% below its current price. For the record, Morgan Stanley analysts aren’t the only ones finding it impossible to justify the shares of the stock on a traditional business basis of expected sales, profits, and growth. According to FactSet, the official Wall Street consensus target price for the stock is about $46 a share, about 40% below where they’re currently changing hands.
