By A sharp decline in Palantir Technologies Inc. (PLTR) shares over the past few weeks has led one of its former skeptics to shift his stance.
William Blair analyst Louie DiPalma upgraded Palantir’s stock to Market Perform from Underperform on Wednesday, following a roughly 30% drop in the past three weeks.
The stock saw a 3% rise in premarket trading, but was wobbly as the market opened on Wednesday.
DiPalma, previously a vocal critic, still holds reservations about Palantir’s valuation, which remains high at about 100 times estimated 2026 free cash flow—down from 125 times before the recent selloff.
While he believes further contraction is possible if revenue growth slows significantly, his perspective on the company’s valuation has evolved.
Why the upgrade for Palantir stock?
Analyst DiPalma acknowledged that one of the biggest concerns regarding Palantir has been its premium valuation, which stands out compared to peers.
However, he noted that the market’s strong demand for AI-related companies—evident in OpenAI’s recent valuation exceeding $300 billion—could justify Palantir continuing to command an “AI premium.”
Beyond valuation, DiPalma pointed to several factors supporting the company’s outlook.
He highlighted Palantir’s robust AI pipeline, noting that bookings in the previous quarter were weighted toward the latter half, which could provide a boost to first-quarter results.
He also emphasized the resilience of Palantir’s government business, admitting that he had previously underestimated the long-term stability of the company’s contracts with government clients.
DiPalma underscored Palantir’s operating leverage. While revenue grew 50% from 2022 to 2024, the company’s headcount expanded by just 3%, reflecting significant margin expansion.
Despite these positives, DiPalma noted that Palantir is unlikely to hit its original 2025 revenue target of $4.5 billion, set in August 2022.
Still, the company’s ability to expand its margins and leverage its brand recognition for customer acquisition remains impressive.
What is up with Palantir stock?
Palantir shares have declined by around 33% since reaching a record high last month, following a Washington Post report that the Trump administration directed the Pentagon to cut the US defense budget by 8% annually over the next five years.
The news raised concerns about the impact on Palantir’s sales, as the federal government accounted for over 40% of its revenue in the fourth quarter.
On Wednesday, Palantir announced a joint venture with TWG Global to deploy AI across banking, investment management, insurance, and other financial sectors.
Led by Palantir CEO Alex Karp and TWG Global’s Mark Walter, Thomas Tull, and Drew Cukor, the initiative aims to integrate AI into core financial operations, addressing challenges such as compliance, customer growth, fraud detection, and risk management in a competitive and volatile market.
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