January 26, 2024

Bearish Forecast Predicts Palantir Technologies Stock to Plunge 26% Bearish Forecast Predicts Palantir Technologies Stock to Plunge 26%

Is Palantir Technologies’ (PLTR) streak coming to an end? While the AI sector has been experiencing a surge, one notable AI company, Palantir, might be in for a rough ride ahead. Despite a year of impressive growth, Wall Street has heard thunder in the distance, with a bearish forecast predicting the stock to lose over a quarter of its value in the next 12 months.

About Palantir

Born in 2003 with ex-PayPal (PYPL) founder Peter Thiel in its founding team, Palantir is a seasoned player in the big data analytics and fusion platforms market. Its flagship platform, Foundry, empowers users to integrate, analyze, and visualize extensive data sets, particularly for security purposes. Despite its impressive rally, Palantir stock is now trading at lofty valuations, standing well above the median readings for tech sector stocks, suggesting that PLTR might be overvalued.

Palantir’s Recent Performance

Palantir’s latest quarterly results showcased a 17% increase in revenues from the previous year to $558 million, with commercial revenue growing by 23% to $251 million. The company also witnessed substantial improvements in net cash from operating activities, free cash flow, and FCF margin, reflecting positively on its financial health.

Concerns and Challenges

Despite its rise in customer count and the impressive growth of commercial customers, analysts have expressed concerns about the uncertainty surrounding government contracts, specifically citing the U.S. Army and UK’s NHS. Additionally, CEO Alex Karp’s emphasis on market share over a clear monetization strategy has raised eyebrows, given the fierce competition within the AI space.

Analyst Projections

Deutsche Bank recently raised its price target on PLTR to $12, indicating an anticipated downside of more than 26% from current levels and reaffirming a “Sell” rating on the stock. The consensus among analysts is marginally less grim, with an overall “Hold” rating and a mean target price of $14.35, signaling an expected downside of about 12% from current levels. Out of 14 analysts covering PLTR stock, opinions vary widely, with some even advocating a “Strong Sell” rating.

Vertiv (VRT), a key player in critical digital infrastructure such as data center and systems management, unveiled robust quarterly earnings today, driving its stock to record highs. As the artificial intelligence sector blooms, Vertiv's stock has been on a stellar trajectory over the past year, reflecting investors' recognition of its pivotal role in the AI landscape. Even with its remarkable ascent, Vertiv remains attractively valued, poised for prolonged growth, fortified by a top Zacks Rank portending possible further market upticks.

Image Source: Zacks Investment Research

Empowering AI with Robust Infrastructure

Vertiv's recent earnings demonstrate the remarkable boost generative AI has provided to its operations, with no signs of waning. The company occupies a prime position within the AI surge, bolstering shareholder confidence. Vertiv’s pivotal contributions to the AI revolution include:

High-Density Power and Cooling Solutions: Vertiv's advanced data center solutions ensure optimal performance and prevent overheating in response to the escalating power demands of AI workloads. Technical Partnerships: Collaborations with industry leaders like Nvidia allow Vertiv to tailor solutions to meet the unique requirements of cutting-edge AI hardware. End-to-End Expertise: Vertiv offers comprehensive solutions that streamline AI infrastructure deployment and boost performance by managing power delivery and heat rejection effectively. Global Reach and Scalability: With a global presence, Vertiv can cater to the surging demand for data center infrastructure worldwide, adapting to evolving power and cooling needs across different regions.

Given its pivotal role in the AI ecosystem, Vertiv emerges as a prime candidate among AI-related stocks for investment.

Impressive Earnings Performance

Vertiv's first-quarter financials for 2024 surpassed sales and earnings estimates, with a notable organic order surge of 60% year-on-year. Net sales soared to $1,639 million, marking an 8% increase from the same period in 2023. The quarter witnessed an operating profit of $203 million, with adjusted operating profit spiking to $249 million, a substantial 42% annual growth.

In a strategic move, Vertiv initiated share buybacks, repurchasing around 9.1 million shares at a favorable average price, which proved timely as stock prices surged subsequently. Upbeat about its performance, Vertiv raised its full-year 2024 guidance, projecting a 12% growth in net sales at the midpoint, coupled with increased operating and adjusted operating profits. The robust demand, especially in AI-led deployments and liquid cooling technologies, positions Vertiv for sustained growth in the evolving digital infrastructure arena.

Image Source: Zacks Investment Research

Considering Vertiv as an Investment

Vertiv's integral role in the AI domain, supported by its top Zacks Rank and reasonable valuation, marks it as an enticing investment prospect. With a Zacks Rank #2 (Buy), and optimistic earnings revisions for the next quarter and year, Vertiv exhibits promising growth potential. At a one-year forward earnings multiple of 33.5x, Vertiv's valuation surpasses its median but remains below the industry average, justifying its significance in the AI sector. Moreover, with an estimated annual EPS growth of 26.7% over the next 3-5 years, Vertiv's investment appeal shines brighter.

Exploring Other AI Investment Avenues

Recent market fluctuations have presented buying opportunities in the AI sector, with noteworthy tech and AI-related stocks witnessing dips of 10%-20%. Among the standout names in AI, Nvidia emerges prominently, presenting investors with a compelling avenue for AI-driven growth.

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