Palantir Stock Surges Ahead of Q3 Earnings: Is It Worth Buying Now?

Palantir Technologies, a leading player in data analytics and artificial intelligence (AI), is set to release its third-quarter earnings on November 4, 2024. As the company prepares for this significant event, its stock has been experiencing a remarkable surge, rising by 149% this year and 78% since the second-quarter results were announced on August 5.

Currently trading at $42.79, Palantir’s stock is near its all-time highs. However, this substantial increase has raised concerns among analysts about the stock’s valuation. Palantir is trading at a price-to-sales (P/S) ratio exceeding 40, which has expanded considerably over the last three months, indicating significant momentum but also potential overvaluation.

Despite the company’s positive net income and free cash flow, these metrics are relatively modest, making it challenging to assess the company’s value solely based on these figures. Analysts from firms like Raymond James have downgraded the stock, suggesting that Palantir must “consolidate its impressive gains from recent years and align with its high valuation.” Only four out of 21 tracked firms recommend purchasing the stock, while ten suggest holding and seven advocate selling.

The upcoming earnings report will be crucial, with analysts predicting third-quarter revenues of $702 million, a 26% increase from the previous year, and a 28% growth in earnings. Investors are also eager to hear about new client acquisitions and updates on the company’s AI platform, which was launched in 2023. Palantir has secured significant contracts with government agencies and has attracted new corporate clients such as CBS Broadcasting and General Mills Inc..

Given the end-of-year trading volatility and the looming presidential election, some investors advise caution. The final months of the year often see increased trading volatility due to strategies like tax-loss harvesting, and the election could add another layer of uncertainty. Therefore, it might be prudent to wait for potential sell-offs in the stock rather than buying immediately.

Palantir’s CEO, Alex Karp, has emphasized the company’s long-term potential, particularly in its partnerships with other defense and technology companies. A recent partnership with L3Harris highlights the company’s focus on integrating hardware and software to produce more lethal technologies, leveraging AI for military use.