One of my favorite stock market prognosticators I like to listen to is Wedbush analyst Dan Ives. Ives has been generally correct on the idea that this super cycle we're seeing in certain technology stocks, and pockets of the tech market overall, can continue. As such, I think investors (myself included) should pay attention to what he says.
With recent comments around artificial intelligence (AI) technology still only being in its “third inning,” I think Ives' views on companies like Palantir (PLTR) ought to be taken seriously.
Let's dive into what the superstar analyst has to say about the AI buildout more broadly, and what this could portend for the likes of Palantir and other AI juggernauts.
What Does ‘Early Innings’ Really Mean?
According to Ives, the rally we've seen in companies like Palantir that are fueling the AI revolution is really only around a third complete. For investors who have been fortunate enough to have put some capital to work in many of these names years ago and watched their capital gains pile up, that's good news. Indeed, for many investors, taking profits at elevated prices — and paying taxes on those gains — can hurt. But doing so before a rally goes absolutely parabolic (if we really are only in the third inning of this rally, as Ives and others have suggested) could hurt even more.
For Palantir in particular, Ives suggests that this is a company that's seeing its robust growth potential backed up by stunning results. With strong positioning as a company that can benefit from growing AI adoption and significant growth in both its government and commercial businesses, this momentum could continue for a long time to come.
But What About the Valuation?
On the flip side of the coin, one of the key metrics I continue to come back to as a blinking danger sign is Palantir's sheer valuation.
Trading at nearly 200x cash flow, nearly 75x sales, and with a forward price-to-earnings growth metric at 127x, it's hard to find a company that's valued more dearly in what many view as an already overvalued market. That could provide investors with medium to long-term headwinds, particularly if we do see investor sentiment toward AI growth stocks deteriorate.
I'm certainly considering the reality that Palantir has done a great job of growing its earnings at an outsized pace. Thus, it's entirely possible that a few more years of outlandish performance on both the top and bottom line could make this current valuation seem reasonable. However, the question I think is more pertinent to investors who have a value tilt is simply how long it will take for Palantir to have a valuation reflect something close to the current market multiple.
Do Wall Street Analysts Agree with Dan Ives?
What's interesting about looking at the consensus price target on PLTR stock is that there's still extreme bullishness being priced into this high-growth (and pricey) AI stock. At a mean target of $192 per share, analysts expect PLTR stock to surge 42% from recent levels over the course of the next year or so.
That's a lofty target, no doubt. But for a company that's seen its margins take off in recent years (Palantir was famously unprofitable for many years before turning the corner hard in this regard), I think there's something to these significant price targets set across the board. Notably, the high target on the Street at $255 per share suggests a near-doubling of this stock over the course of the next 12 to 18 months could be feasible.
We'll have to see. I'm a bit more hawkish in my views of Palantir than Dan Ives and other proponents of the company. But given its past results and the momentum of this space, there's no shortage of reasons to remain long as well.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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