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Palantir: Overhyped AI Software Analytics Firm

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Introduction

Palantir, the software analytics firm known for its artificial intelligence capabilities, recently received a downgrade from Jefferies. The downgrade was justified by the belief that the hype surrounding Palantir’s AI technology is overdone, leading to a slip in the company’s shares.

Jefferies Downgrade

Analyst Brent Thill from Jefferies decided to downgrade Palantir’s rating from Hold to Underperform. Additionally, he lowered the price target to $13 from the previous $18. As a result of this downgrade, Palantir’s stock experienced a 3.7% decline, reaching $15.65 in premarket trading.

Challenges Faced by Palantir

Despite being one of the top-performing big software makers in the previous year with a gain of 167%, Palantir is currently encountering several obstacles. One major challenge is a dispute with its largest customer, the U.S. Army, concerning data ownership. This dispute significantly impacts Palantir’s business operations.

Jefferies acknowledges that Palantir still holds an advantage in artificial intelligence in the long run. However, the firm believes that the company’s current valuation is unsustainable due to the excessive excitement surrounding AI stocks.

Analyst’s Perspective

In a note, Thill expressed his surprise at the severity of the slowdown in both Palantir’s commercial and government businesses, leading to a demand recovery that is taking longer than anticipated. This slower recovery could potentially restrict growth until at least 2024.

Market Reaction

While Palantir experienced a decline in its shares following the downgrade, competitor Alteryx’s shares remained relatively unaffected. Similarly, the shares of Splunk did not show significant changes. However, Cognizant’s stock experienced a slight decline of 1.1% during premarket trading.

Conclusion

The downgrade from Jefferies highlights the concerns surrounding Palantir’s AI technology and its valuation. Despite acknowledging the company’s long-term advantage in AI, Jefferies believes that the current hype is unsustainable. Palantir now faces the challenge of resolving the dispute with its largest client, the U.S. Army, in order to regain its growth momentum.

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