Shares of Palantir Technologies (NASDAQ: PLTR) are falling on Tuesday. The company’s stock slid 14.1% as of 10:10 a.m. ET and was down as much as 14.6% earlier in the day. The move comes as the S&P 500 and the Nasdaq Composite fell by 1% and 1.2%, respectively.
Shares of the big data analytics and artificial intelligence (AI) software company were falling after the company released its first-quarter earnings.
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The numbers weren’t enough
Palantir reported Q1 earnings per share (EPS) of $0.13 on sales of $884 million. The company’s revenue was up 39% year over year, beating Wall Street expectations. The strong growth was driven primarily by major U.S. sales, up 55% year over year. Expecting this U.S. strength to continue, Palantir raised its 2025 full-year forecast.
Despite the seemingly positive report, there was a key weakness that led to today’s stock slide: Global sales declined 10% year over year. The international weakness is a concerning sign that calls into question Palantir’s ability to continue its overall growth at the current pace.
Image source: Getty Images.
A valuation issue
Jefferies analyst Brent Thill was concerned that Palantir couldn’t continue justifying the massively inflated valuation of its stock, saying, “While fundamentals have strengthened in recent quarters, [Palantir’s valuation] has risen to unprecedented levels.” He went on to describe it as “irrational.”
I agree. Its price-to-earnings ratio (P/E) of 650 is much too high. There is no doubt that Palantir, by and large, is executing at a very high level. A valuation this high means it must execute perfectly for years. The shrinking global demand calls into question its ability to do so. I would stay away from this stock unless it retreats significantly to a level that could be considered rational.
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group and Palantir Technologies. The Motley Fool has a disclosure policy.
