In a dramatic surge of 18.7% during premarket trading on Tuesday, Palantir Technologies witnessed a remarkable boost in its shares, fueled by robust revenue growth in the fourth quarter driven by heightened demand for its AI solutions.
The data and analytics firm reported a striking 32% year-over-year increase in revenue from its commercial segment, reaching $284 million for the quarter. This surge propelled the company's overall revenue to $608 million, surpassing estimates from LSEG.
However, while the company's AI offerings flourished, Palantir experienced a slowdown in its government segment, which traditionally contributes more than half of its total quarterly revenue. This slowdown was attributed to uncertainties surrounding contract timelines.
CEO Alex Karp hailed the company's AI program as the "future" of Palantir, particularly anticipating growth within the United States. Following this optimistic outlook, Jefferies upgraded Palantir's shares from "underperform" to "hold," citing the rapid ramp-up of the AI Platform (AIP) as exceeding initial expectations.
In addition to its strong performance, Palantir introduced an adjusted free cash flow forecast targeting between $800 million and $1 billion for 2024, which was lauded by Jefferies as the highlight of the report.
Meanwhile, Nvidia, a prominent player in the AI sector, saw its stock rise by 1.5% in premarket trading, further reflecting the momentum in the AI market.
Despite these positive developments, analysts expressed concerns about Palantir's lofty valuation, which has nearly doubled over the past year. Morningstar analyst Malik Ahmed Khan highlighted the disparity, noting Palantir's median price-to-earnings (PE) ratio of 53.19 compared to the industry median of 17.60. A lower PE multiple typically signifies a more attractive investment opportunity.
Overall, Wall Street remains cautious, with an average rating of "hold" among 17 brokerages covering the stock. The median price target of $18.50 suggests a projected 6% decrease in shares over the next 12 months from the latest premarket price of $19.80.
