New Trump Administration Near. Is Palantir Stock A Buy Or Sell Amid High Valuation?

There's plenty for bulls and bears to hash out over Palantir Technologies (PLTR). Bulls point to improved profitability for PLTR stock. Bears focus on revenue growth for Palantir stock. Then, there's buzz over artificial intelligence stocks to consider for the maker of data analytics software.

Palantir stock advanced 340% in 2024, with much of the gain coming after Donald Trump's Presidential election win as well as a third-quarter earnings beat. Donald Trump will take office on Jan. 20.

PLTR Stock: Trump Administration 2.0

Several members of the incoming Trump administration have ties to Palantir, a company co-founded by longtime venture capitalist Peter Thiel. They include David Sacks, tapped as White House artificial intelligence and crypto czar. Tech industry maverick Elon Musk, Sacks and Thiel helped launch PayPal, becoming part of the so-called PayPal Mafia. Musk is a key Trump advisor.

PLTR stock hit an all time intraday high of 84.80 on Dec. 24. Shares pulled back in late December.

Palantir has provided data analytics tools to government customers for intelligence gathering, counterterrorism and military purposes. Now Palantir aims to use generative AI to spur growth in the U.S. commercial market.

One reason for Palantir's post-election rally could be views that artificial intelligence will play a bigger role in homeland security or defense spending.

One wild card for Palantir stock and government system integrators is President-elect Trump's "Department of Government Efficiency" (DOGE), an advisory panel focused on cutting spending and the size of the federal government.

"Elon Musk has alluded to IT modernization being a major focus for DOGE, which would seemingly benefit the government tech group that specifically specializes in IT modernization," said William Blair analyst Louie DiPalma in a report. "However, in our view, the renewed focus on federal debt level and potential shift toward fixed-price contracts may result in a slow-down in overall bookings relative to the pre-election frenetic pace."

He added: "When taking into account the Senate's desire for a defense budget increase and DOGE's ambition for reductions, we expect a flattish defense budget over the next several years. We expect IT modernization initiatives and prototyping of next-gen weapons systems to continue to grow faster than the overall budget, which will benefit the group."

Palantir Stock: Defense Business News

According to a report, Palantir  and startup Anduril Industries are talking with many other tech companies, including OpenAI and Elon Musk's SpaceX, to form a consortium to jointly bid on U.S. government contracts.

In December, the federal government gave Palantir  a higher rating for secure cloud computing services. And, Palantir announced a partnership with Booz Allen Hamilton (BAH), a competitor in some government and defense services.

Also on Nov. 7, Palantir and startup Anthropic announced a partnership with Amazon Web Services to provide U.S. intelligence and defense agencies access to the Claude 3 AI models.

In October, Palantir formed an alliance with defense firm L3Harris (LHX).

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High Valuation An Issue?

Palantir joined the Nasdaq 100 index on Dec. 23. Meanwhile, Palantir joined the S&P 500 index on Sept. 23. The inclusion enables mutual funds and institutional investors to buy PLTR stock.

UBS analyst Karl Kierstead launched coverage of Palantir stock on Dec. 18 with a neutral rating. "Our review of Palantir's fundamentals left us very positive.  In our view Palantir deserves a material multiple premium to most/all other public software firms. The main thing keeping us on the sidelines is valuation, which at 49 times revenue and 124 times free cash flow on 2025 estimates is simply tough to get over."

Palantir's third quarter revenue rose 30% to $725 million. Kierstead added: "Investors appear to be pricing in a sustainable 30% growth profile (if not higher) and continued margin gains."

Meanwhile, IBD doesn't put much weight on P/E ratios and other valuation metrics. On the other hand, here are some time-tested trading rules.

PLTR Stock Ranks No. 3 In IBD 50

And, Palantir stock ranks No. 3 on the IBD 50 roster of growth stocks. In addition, Palantir is among AI stocks to watch.

Meanwhile, PLTR stock has out-performed other software companies. The iShares Expanded Tech-Software Sector ETF (IGV), an industry index that includes Microsoft (MSFT) and many big-cap software companies, has gained 26% in 2024.

The company continues to make progress with its "Artificial Intelligence Platform," initially rolled out in early 2023. Palantir hosted its fifth AIP event in September.

At AIPCon 5, clients such as the National Geospatial-Intelligence Agency, Aramark, and Mount Sinai demonstrated Palantir AI technologies in better supply chain management, operational efficiencies and health patient care.

However, Palantir has not disclosed pricing for AI products. Some analysts say Palantir needs to show more revenue progress with generative AI commercial deployments.

Still, Wall Street analysts now do not expect most software makers to monetize generative AI, or "conversational AI,"  in a material way until 2025 or later. Here's a look at the enterprise AI market.

Palantir Stock Fundamentals

On the news front, there's plenty for investors to mull. Oracle (ORCL) and Palantir announced a cloud computing alliance.

Meanwhile, here's a look at Palantir's international business, including how AI is doing in Europe.

Also, Palantir stock jumped 167% in 2023. The Nasdaq composite climbed 43% while the S&P 500 rose 24%.

The Denver-based company offers three platforms. One is Palantir Gotham, used primarily by government agencies. There's Palantir Metropolis for banks, financial services firms and hedge funds. And Palantir Foundry is used by corporate clients.

Palantir gets nearly 60% of its revenue from government agencies. Decelerating revenue growth is an issue. In 2022, revenue growth slowed to 24% from 40% in 2021 and 47% in 2020. In 2023, revenue grew 17% year-over-year to $2.23 billion.

Palantir Stock Technical Analysis

Meanwhile, Palantir's Relative Strength Rating stands at 99 out of a best-possible 99.

Also, Palantir stock holds a Composite Rating of 99 out of a best-possible 99, according to IBD Stock Check-up. IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.

PLTR stock holds an Accumulation/Distribution Rating of A. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. A+ signifies heavy institutional buying; E means heavy selling. Think of a C grade as neutral.

As of Jan. 5, Palantir stock is very extended above an entry point of 29.83, according to MarketSurge. Also, PLTR stock trades well above a 5% buy zone.

Some investors may want to take profits.

Investors can sign up for news alerts from Palantir investor relations department here.

Further, check out IBD Stock Lists and other IBD content to find dozens more of the best stocks to buy or watch.

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.

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