Analysts at Monness, Crespi, and Hardt downgraded the Palantir (NYSE:PLTR) stock to Sell from Neutral and issued a target price of $20, sending the company's shares down 3% in premarket trading.
The move comes in the aftermath 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 industry. Because of this, the market will likely increasingly avoid software stocks with excessive valuations, Monness noted.
“After surging 167% in 2023, Palantir’s stock was already rich upon entering 2024 and, with a 49% rally YTD, we believe valuation has now reached a gluttonous extreme,” analysts said in a note.
In the long run, PLTR is well-positioned to capitalize on the AI trend and volatile geopolitics, they added. However, the stock’s valuation is sitting at extreme levels. With this, alongside the pressured software industry and lumpy revenue recognition from government-related contracts, “the darkest days of this economic quagmire are ahead of us,” the analysts highlighted.