Buy, Sell Or Hold Palantir Stock At $172?
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On Monday, Palantir reported third-quarter revenue of $2.31 billion, up 96% from a year ago. Adjusted earnings were $0.44 a share against about $0.41 expected, and it raised its full-year revenue outlook to about $8.53 billion. For the first time, its U.S. business customers paid it more than the U.S. government did. The stock closed down 3.1% at $178.34 on Monday, before the report, then fell 1.7% on Tuesday and 2.1% on Wednesday, to $171.70.
| What the market sees | Number | What it means |
|---|---|---|
| Revenue growth | +96% | Nearly double a year ago |
| New contracts signed (total contract value) | $2.92B, +6% | Bookings are growing far slower than revenue |
| Market value | $412B | At Wednesday’s close of $171.70 |
| Price to this year’s sales | ~48x | Our yardstick for mature software is 10x |
| Stock, last 5 days | −13% | To Wednesday’s close |
Investors weren’t grading the quarter. They were grading the price, and the one number that grew slowly.
Palantir is 18% below its 52-week high of about $209 and down 10% over 12 months, even though it’s up 37% from its Aug 3 close. A beat-and-raise quarter that ends in a selloff often means the good news was already in the price.
See more lines: how we worked out the multiples
Market value ($412B at Wednesday’s close) divided by the full-year revenue outlook ($8.53B) gives about 48x sales; on the past 12 months’ revenue ($7.29B) it is about 57x. Shares outstanding are about 2.4 billion (market value ÷ price). Adjusted EPS of $0.44 a quarter, times four, is $1.76, so the stock trades at roughly 100 times its current run-rate of adjusted earnings. On trailing reported earnings of $1.43 a share, the multiple is about 120x.
What Is $172 A Share Asking Palantir To Do?
Work it backward. Say that in five years Palantir is a mature, very profitable software company, valued at 10 times sales (our yardstick for a best-in-class software firm). To be worth today’s $412 billion at that point, with no gain at all for shareholders along the way, it would need about $41 billion in revenue. From $8.5 billion this year, that’s about 37% growth every year for five years.
That’s possible. Palantir is growing faster than that today. But it’s the price of standing still. A shareholder who wants the stock to double over those five years is betting on growth near 57% a year, or on the market keeping today’s multiple. That is a lot to ask of a company this size.
Why Did The 6% Matter More Than The 96%?
Because contracts are the pipeline. Revenue tells you what Palantir is billing now; total contract value tells you what customers have committed to pay later. A year ago, Palantir signed about $2.76 billion of contracts in a quarter in which it booked about $1.18 billion of revenue, or about $2.34 of new contracts for every $1 of revenue. This quarter it was about $1.26 for every $1. U.S. business contracts, the part investors care most about, grew 11%.
One quarter of contracts is lumpy, and big multiyear deals can make a year-ago figure look high. But at 48 times sales, investors don’t give the benefit of the doubt. The bull case needs the pipeline to keep up with the revenue.
How Far Have High-Priced Software Stocks Fallen Before?
Very far, and Palantir knows it firsthand. From its early-2021 peak to its late-2022 low, the stock fell about 85%. It wasn’t alone: from late 2021 to late 2022, a basket of cloud software stocks (the WisdomTree Cloud Computing fund) lost about 65% of its value as sales multiples shrank. Even giants fall: Meta lost about 77% from its 2021 peak to its 2022 low. Palantir’s own revenue kept growing, up 24% in 2022. The multiple did the damage.
What Price Does Each Story Support?
Assume revenue grows about 50% next year, to roughly $12.8 billion, a slowdown from 96% but still very fast. Then the price depends on the multiple investors will pay:
| Story | Multiple of 2027 sales | Price per share | vs. $172 |
|---|---|---|---|
| 2022-style reset | 15x | ~$80 | −53% |
| Half-way reset | 25x | ~$133 | −23% |
| Today’s price | ~32x | $171.70 | 0% |
| Back to the 52-week high | ~39x | ~$209 | +22% |
| Morgan Stanley’s new target | ~44x | $233 | +36% |
All rows are estimates from Wednesday’s market value and the assumed 2027 revenue. Morgan Stanley raised its target to $233 from $205 but kept a neutral rating. If growth slows faster, to 30% next year, every row drops by about 13%.
Yes, Palantir is priced for perfection, and the quarter showed one imperfection. At $172, the stock already assumes years of growth near 37%. Revenue is delivering; new contracts, at +6%, are not yet. A 2022-style reset in the multiple would put the stock near $80 even if the business keeps growing fast.
Related: how low could AI chip stocks go? · how much of the market now rides on AI.
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