Analysts at Monness, Crespi and Hardt downgraded Palantir (NYSE:) to Sell from Neutral and issued a $20 price target, sending the company’s shares down 3% in premarket trading.
The move comes in the wake of a disappointing earnings season for enterprise software and the failure of the 18-month Generative AI hype cycle to generate significant revenue for most companies in the sector. As a result, the market is likely to increasingly avoid software stocks with excessive valuations, Monness said.
“After surging 167% in 2023, Palantir shares were already rich entering 2024 and with a 49% YTD rally, we think the valuation has now reached a gluttonous extreme,” analysts said in a note.
In the long term, PLTR is well positioned to benefit from the AI trend and volatile geopolitics, she added. However, the share’s valuation is at extreme levels. This, in addition to the pressured software industry and the extensive revenue recognition from government contracts, means that “the darkest days of this economic quagmire are ahead of us,” the analysts emphasized.
