With a value of over 100 billion dollars: will this be the next Nvidia?

Four years after it started trading on the New York Stock Exchange at a value of 20 billion dollars, the AI ​​services company for the security market Palantir Overcame the $100 billion mark in its market value this week. This, after a run of 161% in the share price since the beginning of the year. The sharp increase in value put Palantir, managed by founder Alex KArp, also for the leading index S&P 500 in the latest update. Still, the stock seems to be something of an enigma on Wall Street.

When you look at what the analysts think and what future they foresee for the company, it seems that many of them have difficulty justifying the high value it has reached. According to Wall Street Journal data, 24 analysts survey the stock and the average recommendation is “hold” – the recommendation given by 10 analysts. Another 6 analysts provide positive recommendations, and 8 give negative recommendations. This is even more evident in the average target price per share, which stands at $28.32. This, while the Palantir stock is trading today at a significantly higher price, of almost 45 dollars. In other words, the analysts believe that the stock should fall by about 37% compared to the price at which it is trading these days. The company trades at a predicted profit multiple of 107.5 and a revenue multiple of 43.1 – among the most expensive prices on the American stock exchange. For comparison, Nvidia trades at a profit multiple of about 65.7.

Are the big experts missing a star?

Bank of America recently tried to explain this dissonance, with the help of a story from the past. “In 1980, the telecommunications company AT&T hired a consulting firm to estimate what the size of the cell phone market would be in the year 2000,” wrote Bank of America analyst Mariana Perez Mora. “The study found that there would only be 900,000 users. In practice, the number of mobile subscribers was higher than 100 million. This early estimate also failed to predict the world of apps, streaming and smart devices. We see how the capabilities, technology and way forward at Palantir suffer from a fundamental misunderstanding like”. Bank of America estimated that entering the S&P 500 index would be a “watershed” for Palantir, a time when institutional investors would have to reexamine what they “know” about the company. Among the analysts covering Palantir, Bank of America’s target price is the highest, $50 (11% premium), with a “buy” recommendation.

It is not for nothing that Bank of America mentions the institutional investors in the context of Palantir. According to the bank’s data, near its entry into the S&P 500 index, institutional holdings were 45.8% of the floating commodity (float), and the proportion should increase upon its entry into the index. The bank pointed to an increase in institutional holdings over the past year, but still, close to 50% of the holdings in Palantir shares belong to retail investors (private investors) – a rate significantly higher than the average for other shares in the index. Moreover, the analyst points out that the five institutions with the largest holdings in Palantir own about 20% of the shares, which in her estimation leaves opportunities for other institutions to consider investing in it.

A recent article in the Wall Street Journal stated that while it is not a consumer brand, Palantir has developed a passionate fan base among hobbyist investors, who exchange analyzes on social media. In the same article, CEO Karp said that the private investors in Palantir “are brave enough to invest their money in what they believe in.”

The connection to Israel and the profits multiplied 5 times

Palantir was founded in 2003 by Karp and Peter Thiel, who was the founder of PayPal and an early investor in Facebook. The company’s name is based on a crystal ball in the “Lord of the Rings” series and its flagship product is Gotham, a name that comes from the Batman comic books. The company develops software for big data analysis, based on AI, and works mainly with intelligence agencies and militaries around the world, with an emphasis on the US military. One of its customers, by the way, is the IDF and the company is considered to have good relations with the Israeli security establishment and its top brass, Corp. Yel, are known as supporters of Israel. It was recently learned that against this background, the Norwegian fund Storebrand decided to sell its shares in Palantir and stated that this was due to the sale of products and services “for use in the occupied Palestinian territories”, as it defined it.

At the same time, it also has a growing activity with civilian clients. The growth in this segment supported the raising of the annual forecasts with the publication of the previous reports, for the second quarter of the year (the third quarter reports will be published next week). The company expects revenues of 2.742-2.75 billion dollars, compared to a previous forecast of 2.6-2.69 billion dollars. The updated forecast reflects growth of 23.2%-23.6% in the top line compared to the previous year, when the commercial sector in the US will grow by 47% to revenues of 672 million dollars.

In the first half of the year, Palantir grew by 24% in revenue, to the level of 1.3 billion dollars, and the net profit jumped from 47 million dollars to 242 million dollars. The EBITDA (earnings excluding interest, tax, depreciation and amortization) amounted to $497 million, 38% of revenues, compared to $277 million, 26% of revenues, in the first half of 2023.

“One of the most important tech companies in the world”

After the publication of the latest reports, Oppenheimer wrote that Palantir presented an excellent performance and noted that Karp said in the investor call that demand from the US is tremendous, and the pace of closing Palantir’s deals remains very high. “In our estimation, Palantir will grow to be one of the most important technology companies in the world and its influence will approach that of Microsoft.” , wrote Omri Afroni, an analyst at Oppenheimer.

The sharp increase in Palantir shares since the beginning of the year makes it the company with the third highest yield in the S&P 500 index, which as mentioned it joined in the last update, about a month ago. The only two stocks that surpass it in returns are Wistra From the field of electricity production, which has increased since the beginning of the year by 227%, and the chip giant Nvidia which climbed by 184%.

As mentioned, most analysts believe that the stock is overpriced, but Bank of America estimates that it still has room for increases. On the other hand, at Jefferies the recommendation is “hold” with a target price of $28, which is 37.7% lower than the current one. Analyst Brent Thiel was a guest last month at a conference held by the company in which organizations from various sectors participated. He noted that the momentum is gaining momentum, but added, “Palentir is the most expensive stock among the software stocks we cover.” Before the previous reports in Jefferies, we stated that “the unique holding structure of Palantir (that is, multiple retail investors, S.H.O.) can cause the stock to continue trading on the basis of enthusiasm for AI”.