Tom Nash
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Time To Sell Palantir and Take Profits?
🕑 Added 2025-01-07 14:12:29 +0000 UTCLadies and gentlemen, Tom here.
This morning, Morgan Stanley’s released an “Underweight” rating on Palantir complete with a $60 price target.
So, does it mean its too late to buy Palantir?
In this article, I’m going to dig through the numbers, lay out the very real risks, and also show you why I remain a long term bullish thesis on Palantir.
We’re not here to pretend Palantir is some zero risk investment. Every stock has its baggage, and Palantir is no different.
Morgan Stanley’s main argument is that the risk reward has tilted negative at current valuations, and that may (or may not) be the case short term. We all know that the market can get pretty irrational when it comes to short term valuations, and maybe it will dip to $60 soon, or maybe it goes straight to $100, nobody knows.
I see a company that’s turned GAAP profitable, expanded aggressively into new commercial verticals, took over the government AI sector and is at the forefront of enterprise AI.
I couldn't be more excited. Then again, I’m not exactly known for keeping quiet when I think analysts calls about Palantir are flat out missing the forest for the trees.
So let’s break it all down step by step.
1. The Morgan Stanley Call
Morgan Stanley’s analyst, Sanjit Singh, just slapped an Underweight rating on Palantir with a $60 price target. In the same breath, he acknowledges that Palantir has delivered on multiple fronts:
Strong U.S. commercial traction
Growing momentum in the government sector
Disciplined operating expenses
A surge in demand for its artificial intelligence offerings
Yet the verdict is Underweight because, in his words, “We see success more than priced in at the current multiple premium.” If you’re a typical retail investor, you might read that as: “We love what they’re doing, but the stock is overvalued.”
Fair enough, stocks do get ahead of themselves sometimes. But let's dig deeper.
2. Palantir’s Growth Trajectory
Everyone knows what Palantir stock did in 2024, but the question you should be asking yourself is why? Why did Palantir rocket so hard? Is it hype driven euphoria, or is it based on actual fundamentals?
On the government side, Palantir secured multiple large government contracts in 2024, including a multi year contract with the DoD which is worth over $1 billion. These are not numbers you ignore. On the commercial side, it was even more impressive, with the U.S. commercial revenue growing in the high double digits quarter over quarter for a stretch of 2023, culminating in triple digit year over year growth in 2024.
Beyond it all, in 2024 the world realized one simple truth: once a Fortune 500 company starts using Palantir’s AIP, they don’t ever leave. This is one of the stickiest, mission critical software solutions the world has ever seen.
Palantir became GAAP profitable in Q1 2023, and has never looked backed since.
Suddenly, the “money losing disaster company” is a monster.
Revenues are up 85% over the past 3 years, that is nice, but have you seen the operating income growth over the past 12 months?
In the past year, operating income went from $36 million to $365 million, that is a 900% increase, with only a 7% increase in operating expenses during that time. If you look in the dictionary, the PLTR logo should appear next to the word scalability.
Not to mention the 81% gross margin, the $5 billion in cash and 250 million in debt. Palantir has 20 times more cash than debt, which is absolutely insane, considering its 60+ rule of 40 score and the massive free cash flow margin.
We can all agree that in 2023–2024, the market went bananas over AI.
Every CEO under the sun started dropping “AI” 13 times on their earnings calls. But for Palantir, AI wasn’t just a buzzword; they rolled out their Artificial Intelligence Platform (AIP), showcasing real world use cases for defense agencies and commercial clients.
They’ve got customers using Palantir to build large language models, anti fraud tools, and predictive maintenance solutions across industries ranging from automotive to healthcare. So, part of the reason the stock soared is that the AI hype converged with an actual AI product suite.
That’s a perfect storm.
Put all of this together, and you can see how Palantir gained 350% in 2024. When a company shows profitability, strong revenue growth, commercial traction, plus an AI narrative, investors rush in.
3. Commercial Segment Potential
Morgan Stanley highlights Palantir’s newfound commercial traction as part of why it soared in 2024. But they argue that’s already baked in.
Let’s see.
Since 2022, Palantir’s U.S. commercial segment has been on a tear. In Q2 2023, they reported 20 new deals with U.S. private enterprises, spanning healthcare, energy, and finance. By Q4 2023, that momentum had accelerated further with expansions into retail analytics, pharma R&D, and supply chain optimization. If you check their official numbers, U.S. commercial revenue growth was clocking around 53% by mid-2023, trending upwards in the following quarters.
On the flip side, Palantir’s international commercial growth has been slower. Europe, in particular, has heavier data privacy regulations, more skepticism about American tech solutions, and a more fragmented market. That’s not to say Palantir can’t penetrate it, it just takes time. If you look at Palantir’s 2023 annual report, international commercial revenue was growing at a modest 20–25% rate, lagging significantly behind the U.S. commercial boom.
What’s the real advantage for Palantir? Stickiness. Once integrated, it’s not easy or cheap to rip out Palantir’s platform and replace it with a competitor. That’s why Palantir sees a lot of “land and expand.” They start with a pilot project, prove ROI, and then scale across multiple departments or geographies. Over 70% of Palantir’s commercial clients as of mid-2024 have expanded their contracts at least once within 12 months of the initial deployment. That’s a telling statistic about product-market fit.
Bottom line: The commercial side is indeed the next frontier for Palantir’s growth. Is it “fully priced in?” Possibly in the short term, but if Palantir keeps winning new deals at the current pace, the bull thesis is that the commercial business alone could be worth many multiples of today’s total revenue.
4. AI Platform (AIP)
Palantir has showcased AIP’s ability to build and deploy large language models securely in defense contexts. The key difference from typical AI platforms to AIP is Palantir’s emphasis on scalability, cost effectiveness, data governance, security, and integration with existing data pipelines.
Some enterprise clients have reported as high as a 50 to 60% reduction in time to insight after implementing Palantir’s advanced AI modules. Others claim the platform paid for itself within 9 to 12 months.
This points to a real value proposition, not just hype.
The question: can Microsoft, AWS, or Google Cloud replicate this? Well, they’re also rolling out generative AI services and advanced analytics. But Palantir’s advantage is in deep, complex integration. particularly in critical infrastructure and government.
If you’re a CIA or Department of Defense, you’re not going to casually pivot to a standard off-the-shelf AI service. You need security clearances, specialized handling, and a proven track record. Palantir’s moat is particularly solid in that realm.
Long story short, AIP is not just marketing fluff. It’s a legitimate AI toolkit that meets real enterprise and government needs in security, compliance, and large scale analytics. That said, the AI arms race is far from settled.
Competition will intensify, and that’s a risk but I remain extremely bullish.
5 Politics, Peter Thiel, and the Trump Administration
Thiel was one of Trump’s earliest supporters in 2016 and has significant influence in conservative tech and political circles. Does that matter for Palantir’s bottom line?
It can, because relationships often ease the awarding of big government contracts. If the new administration prioritizes national security, border control, or big data initiatives, Palantir could be first in line to offer solutions.
That has historically been the case.
If we see an uptick in military spending, AI driven defense projects, or tighter immigration analytics, Palantir stands to benefit. These are complex data problems, precisely where Palantir thrives. A more hawkish administration might drive more dollars to intelligence and defense analytics, again, a tailwind for Palantir. Analysts estimate the global defense intelligence market could grow to $28 billion by 2027, and Palantir is arguably the best positioned software platform in that space.
Politics cuts both ways. If Palantir becomes too closely associated with a particular administration or policy, it could face reputational backlash from other governments or commercial clients. We’ve already seen controversies around Palantir’s work with ICE and how that sparked protests. Another divisive political cycle could intensify scrutiny. That’s a brand risk that might deter some potential commercial clients, especially in Europe, where data privacy and ethics are major concerns.
So, yes, a friendly administration might funnel more contracts to Palantir, but the blowback risk is non-trivial. Keep that in mind.
6. The Nasdaq 100 Inclusion
Another potential catalyst mentioned is that Palantir might be included in the Nasdaq 100. Usually, an index inclusion leads to immediate buying pressure from index funds and ETFs that track that index. That can cause a short term pop in the share price as billions of dollars have to get allocated automatically.
But does that matter long term? Historically, index inclusions provide a short-lived bump—maybe a few percentage points, then the stock tends to settle back in. It can add liquidity and reduce volatility over time, but it’s not a game changer for a company’s fundamentals. Still, from a purely tactical standpoint, it can be a welcome tailwind, especially if it coincides with good earnings or government contract wins.
7. Valuation Anxiety
Let’s address the elephant in the room: Valuation.
If Palantir can sustain 30%+ revenue growth for the next 3 to 5 years, while expanding margins the current multiples might not be insane. But if revenue growth dips to 15 to 20% in a couple of years, the premium compresses quickly, and you could see a painful drawdown in the stock.
That’s what Morgan Stanley is worried about.
Look at companies like Salesforce or Tesla in their early hyper growth phases. Tesla traded at astronomical valuations for years. Eventually, Tesla’s growth and margin expansion started to validate some of that early hype (though you can argue it’s still richly valued).
Salesforce, another enterprise software pioneer, traded at high multiples for a while but eventually matured into a multi hundred billion dollar behemoth. Their price eventually “grew into” the valuation. The question is whether Palantir can do the same in the AI and data analytics space.
Even if Palantir executes well, markets can be irrational. A macro downturn, a shift in investor sentiment, or a broad rotation out of tech can slice multiples in half. That’s a real risk for anyone piling in at these levels. Let’s be brutally honest: a 340% run in a single year is enormous. Stocks often need time to digest such gains, so some near-term volatility or correction wouldn’t be shocking. If you’re a short-term trader, that might rattle you. If you’re a long-term investor with a multi year horizon, you might see it as a buying opportunity.
Palantir could absolutely become a $100+ stock if it continues to grow revenue aggressively, expand margins, and deliver real AI-driven solutions to big enterprises and government agencies.
But that’s not guaranteed, and the path could be bumpy.
8. Conclusion: Where I Stand—and Why I’m Not Backing Down
Morgan Stanley’s Underweight rating is hinged on a singular thesis: “The current stock price has already priced in too much future success, so we see more downside risk than upside at these levels.” Is that a valid viewpoint? Sure, it’s one way of looking at things, especially if you focus strictly on near term.
But as an investor who’s combed through Palantir’s fundamentals, listened to their customers’ testimonials, and watched them land contract after contract, both commercial and government, I see a different picture.
My personal stance? I’m not backing down. If Palantir dips 10%, 20%, or even more in a broad market sell-off, I’d see that as an opportunity, not a death knell. I get it: some folks cringe at a 25x forward revenue multiple and say, “No thanks, too expensive.” But high-quality, category-defining companies often command high valuations, especially if their total addressable market (TAM) is massive. Data analytics is huge today, and it’s only going to get bigger as more organizations realize the cost of not harnessing data effectively is simply too high.
Yes, the stock might be expensive on a near term multiple basis. Yes, it could correct. But the fundamental story is stronger than ever. I see Morgan Stanley’s Underweight rating as a caution that the near-term risk-reward isn’t ideal. Fine. But if you’re in it for the long haul, the big picture remains compelling, and that’s why I’m staying.
If it dips, I’ll probably add more.
If you’ve got a long-term mindset, if you believe in the future of AI, and if you think Palantir will keep landing big fish in both the government and commercial ponds, then you might just agree with me that Morgan Stanley’s Underweight is a short-sighted call. After all, some of the best growth stories in the market didn’t trade at “fair” multiples in their formative years they traded at premium multiples because the market was betting on them becoming the next big thing. With Palantir, I believe that bet is far from over.
-Tom
Comments
JerseyT
I am with you on PLTR, let's go... 💪🚀🐂
Ingo Schroeder
Thank you for sharing your research, insights, and as always logical and subjective. I agree with Island Boy that everything is moving towards an autonomous Super Ai driven world with PLTR at the forefront.
MikeGi Cavalier
Yahoo! PLTR stocks spiral down... Thanks TOM for your insights and conviction!!! my wait for DCA to Double down has come down to execute.. this could likely stays like this for 5 days or so before it climb back up!!
Generico Fakero
👏
Island Boy
" the cost of not harnessing data effectively is simply too high" - This is becoming an expanding problem. Execs want to squeeze every relational insight out of the data sprawl from decades ago. I don't know of any growth company or further, a true disruptor that had initial fair valuations. When you think logically about it, it shouldn't be "growing rapidly and fairly". Also in business cycle phases, it's very unlikely that in the growth phase for valuations to appear "fair". That doesn't mean the actual financial statements aren't fundamentally sound but expect unusual outlandish numbers from traditional ratios. Palantir is in fact a game changer. I liked the word you used for a competitive moat: Stickiness. We are indeed transitioning to a layer of operation that is integrating more intelligent AI into every aspect of life, business, recreation,health, defense and likely even religion. I've seen a number of articles strictly comparing Palantir to Cisco, but it's actually Microsoft. And I mean Microsoft when it was Windows 3x, 1992 not after 2k. By 2000, Windows became super sticky lol. MS Paint, Calculator, Office were legendary in the 90s. You didn't have to push file cabinets as much: Use excel and Access. And even though the .com bubble had a macro effect, strong fundamentally sound companies recovered. AIP is first mover in a standardized, commercial way, becoming the defacto AI-OS primarily for the generative age. Microsoft, Apple, Linux can attempt to bake in AI-OS variants all they want but its not going to be pure play like Palantir as THE AI-OS. We have what is called "strong" AI and moving towards Artificial Super Intelligence. That is what we see in movies...and also cartoons like Rosey from the Jetsons..RoboticsAI :D Oh and btw...Charmin "now an AI company"...(i'm jkn, i'm jkn)
