Palantir (PLTR) is facing tough competition. Meanwhile, the valuation of PLTR stock is high
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Evidence continues to accumulate that Palantir’s (NYSE:PLTR) business is growing rapidly, driven by a significant amount of enthusiasm for its Artificial Intelligence Platform which facilitates the use of AI by large companies and government agencies. Nonetheless, AIP is facing tough competition which is likely to greatly rise over the longer term, likely causing PLTR’s growth to significantly deteriorate. Moreover, the valuation of PLTR stock remains quite stratospheric, while there’s some evidence that the Street’s enthusiasm towards the shares is limited. Also noteworthy is that, as I pointed out in previous columns, the firm continues to generate very little profit.
Given all of these points, I continue to advise investors to sell PLTR stock.
AIP Is Boosting the Company’s Financial Results
In recent weeks Palantir’s AIP offering appears to have generated a significant amount of orders and revenue for the firm.
Indeed, Dan Ives, a well-known analyst at investment bank Wedbush, earlier this month wrote reported that, based on his research, he thinks that “many US enterprises” are poised to use AIP to develop their AI systems. He added that PLTR is able to have its customers’ AI systems “completely & fully integrated between 1-4 weeks of signing papers”.
And last August, PLTR stock disclosed that “The platform already has users across more than one hundred organizations, including some of the largest enterprises in the world from the healthcare, finance, automotive, and energy sectors.”
Further, PLTR reported on March 6 that it had won a three-year, $178 million deal to develop the U.S. Army’s next-generation targeting system which will utilize AI. The news indicates that the U.S. military will extensively utilize PLTR’s services in general and its AI integration capabilities in particular in the coming months and years.
AIP’s Competition Is Likely to Ramp Up Quickly
AIP is already facing very stiff competition. Among the major tech firms that are also helping companies and governments integrate AI are IBM (NYSE:IBM) and Accenture (NYSE:ACN), a major consulting firm. Other companies in that category are India-based outsourcing giant Wipro and C3.ai (NYSE:AI), a well-funded and rapidly growing start-up.
And other major government contractors, such as Booz Allen Hamilton (NYSE:BAH), SAIC (NYSE:SAIC) and CACI (NYSE:CACI) are all, like PLTR, helping government agencies utilize AI. CACI, for example, notes that it helps agencies “embed advanced AI techniques within production-ready, cost-effective architectures capable of meeting evolving strategic and tactical needs.” And SAIC reports that its “data science expertise, open-architecture solution stack and integration know-how can federate and centrally organize your data and then operationalize AI-driven analytics from it with greater ease.”
Over the longer term, smaller consulting firms and government contractors are also likely to develop their own AI integration businesses focused on helping Uncle Sam utilize the technology more intensively and effectively.
The Street Is Not Very Enthused About PLTR and Its Profitability Remains Low
Palantir has more than its share of detractors on the Street. Out of the 19 analysts who cover the name, only five have “Strong buy” or “Buy” ratings on the shares. Conversely, seven rate the name a “Hold” and another seven have a “Sell” or a “Strong sell” rating on PLTR stock.
Usually, the proportion of analysts who have “Buy” or “Strong buy” ratings on stocks stands at 65% or higher. For example, 49 of the 54 analysts who cover Nvidia (NASDAQ:NVDA) have a “Buy” or a “Strong buy” rating on the name.
Also noteworthy is that the price of PLTR stock was little changed between Feb. 8 and March 20.
And as I pointed out in my previous column, the firm’s bottom line last quarter came in at a relatively paltry $93 million, while its operating margin was an unimpressive 11%.
Valuation and the Bottom Line on PLTR Stock
The forward price-earnings ratio of PLTR stock stands at 74 times. That’s a very high valuation for a company that’s facing stiff competition which is only poised to greatly intensify over the longer term.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.