Cutting Palantir Stock Fair Value Estimate on a Plethora of Problems

Estimate on stock cut nearly 40%; Palantir stock undervalued but opportunities elsewhere in tech.

Malik Ahmed Khan 20 January, 2023 | 10:42AM
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Palantir Technologies Stock at a Glance

  • Current Morningstar Fair Value Estimate: US$8
  • Palantir Stock Star Rating: 4 Stars
  • Economic Moat Rating: Narrow
  • Moat Trend Rating: Positive

Palantir Technologies Earnings Update

We are lowering our fair value estimate for narrow-moat Palantir (PLTR) to US$8 from US$13 as we are less optimistic about the company’s long-term profitability and revenue growth. Along with reduced profitability, we are also lowering our Morningstar Capital Allocation Rating for the firm to Standard from Exemplary. Our change in the rating is primarily driven by reduced confidence in Palantir’s management team’s ability to execute against the firm’s long-term targets. A particular strategic misstep worth noting has been Palantir’s risky investments in early-stage companies that have soured in the 2022 market correction. We view shares as fairly valued today but see opportunities elsewhere in the fast-growing technology sector.

As mentioned above, Palantir’s solutions have a long runway of growth with governments and large organizations increasingly cognizant of the value Big Data can provide with respect to operational efficiencies. However, in our view, it’s not a lock that all artificial intelligence or machine learning projects will lead to wonderful business outcomes, as organizations often fail to appreciate the complexities and intricacies within a multilayered data science project. AI/ML platforms, such as Gotham and Foundry, enable organizations to develop solutions that use Big Data and result in business and operational efficiencies.

As a key player in this industry, Palantir’s strategy has been to focus on high-value, large organizations and develop bespoke AI/ML solutions. While this strategy has led to Palantir landing large clients (both governments and commercial) that spend millions of dollars on its platforms, it has stunted customer growth as many large organizations consider Palantir’s platforms too expensive. To counteract this trend, Palantir has shifted to a modular sales strategy with customers now able to purchase specific modules instead of onboarding an expensive platform at the onset.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Palantir Technologies Inc Ordinary Shares - Class A25.82 USD3.20Rating

About Author

Malik Ahmed Khan  is an equity analyst, technology, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

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