After the news was released, this data analysis and manualSmartThe company's shares fell 5.2% to $75.74. Morgan Stanley also previously gave the stock an "underweight" rating, but removed the rating in November 2023 to reassess its investment logic. It is worth noting that Palantir has gained more than 340% in 2024 as aS&P 500One of the best performing stocks in the index.
"Palantir had many successes in the early stages of the AI era," Singh acknowledged that the bank underestimated several key factors when it downgraded its rating from Equal Weight to Underweight in August 2023. He pointed to Palantir's artificial intelligence platform (AIP) and successful marketing strategies as driving growth acceleration.
The data shows that the company's U.S. commercial sector will grow at a rate of approximately 50% in fiscal year 2024, significantly higher than the 36% in fiscal year 2023. Moreover, Morgan Stanley failed to foresee Palantir's huge achievements on government contracts, such as the renewal of its Army Vantage contract with the U.S. military, a deal worth up to $619 million.
While acknowledging a "positive correction" to Palantir's positioning in the generative AI space, Singh believes these positive factors are fully reflected in the current stock price. "While recognizing the company's excellent execution and growth momentum, we believe these successes have been fully priced in by the current high valuation and business momentum appears to be stabilizing."
A major beneficiary of the AI boom, Palantir has attracted a lot of attention with its AIP technology. When the company first launched AIP in 2023, market demand was strong, which reflected "institutional unmet demand for intelligent and efficient enterprise software."
While Morgan Stanley is bearish, other analysts remain optimistic on the stock. For example, Wedbush analyst Dan Ives raised his price target on Palantir to $75 at the end of December, noting in a Monday note that Palantir remains "one of the best software investment options for the artificial intelligence revolution through 2025."
Government contracts are also one of the important factors driving Palantir's stock price higher. Palantir has worked with the U.S. Army since 2008 and receives most of its revenue from federal agencies. In December 2024, the company announced that it had received the FedRAMP High Authorization, allowing its full suite of products to handle sensitive federal workloads. This news drove its shares up 7%.
In addition, Palantir has also worked with military contractorsBooz Allen Consulting(BAH.US) entered into a new collaboration and was selected as the chief software integrator for the U.S. Special Operations Command mission command system, paving the way for future AI pilot projects.
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