Few companies have seen the sort of gravity-defying moves that Palantir (NYSE:PLTR) has shown in recent days. Following earnings results, PLTR stock has absolutely skyrocketed, surging more than 40% over the past two trading sessions alone.
However, today’s nearly 8% move in PLTR stock appears to be tied to yet another catalyst. Specifically, Jefferies analyst Brent Thill upgraded the stock today to “hold” from “underperform,” boosting the firm’s price target on the artificial intelligence (AI) and big data company from $13 per share to $22.
That’s a big jump and suggests that Wall Street is growing much more constructive on Palantir and its growth prospects moving forward. After all, the company did report some rather stellar results that shocked even the most ardent bulls.
Let’s dive into the reasons for this upgrade and the positive momentum around Palantir lately.
Why Is PLTR Stock Continuing to Surge So Impressively?
For a big data company with impressive AI capabilities, Palantir has certainly faced its fair share of headwinds in recent years. Struggles to remain profitable have led many bears to assert that continued bottom-line growth may be much more elusive than the company has previously suggested. Even I’ve been in the bearish camp on PLTR stock.
However, Palantir’s recent earnings report cemented yet another profitable quarter — its fifth in a row. It also provided investors with a rosy outlook for both revenue and earnings growth over time.
The company noted strong demand for its AI offerings, suggesting that demand for large language models and Palantir’s related services in this realm remains robust. While the company’s 20% revenue growth rate was impressive, its forecast of between $800 million and $1 billion of adjusted free cash flow for 2024 appears to have particularly stoked investor interest in the company.
Shares of publicly traded companies are typically valued on the basis of future cash flows. With a $1 billion free cash flow estimate for 2024 and a 20% growth rate (assuming that flows through to the company’s bottom line), PLTR stock looks a lot less expensive three or four years out. That’s what the market seems to be focusing on right now.
That said, analysts have pointed to a significant valuation premium for PLTR stock at these higher levels. Even this latest price target increase to $22 per share is below where shares trade now. Thus, I’m going to remain cautious on this stock for the near term, although I can certainly understand the enthusiasm around Palantir today.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
