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UBS; GLOBAL RESEARCH; 18 DEC 2024

Summary

We're launching coverage of Palantir shares with a Neutral rating, an $80 price target, 2025/2026 estimates that are well above the Street consensus (+200bps on revs growth) and a very positive view of the fundamentals. We root our views in conversations with 17 large Palantir customers and other checks and offer their unvarnished feedback in this report, which focuses more than we normally would on the core "what exactly does Palantir do?" question, in addition to unpacking the uplift from its Al-Data exposure.

The main thing keeping us on the sidelines is valuation, which at 49x revs and 124x FCF on 2025 estimates was simply tough to get over.

Impressed With the Fundamentals

Our review of Palantir's fundamentals left us very positive. Customers and other checks were almost all bullish on Palantir's model and the value they were getting from Foundry and AlP in particular, with some push-back on premium pricing and lock-in. Unlocking the value of private data sets is key to realizing Al as well as traditional optimization benefits and Palantir is very well-positioned here, the AlP-on-Foundry platform enables the DIY Al trend (which in our judgement is likely to persist) and Palantir can see further growth upside if/as it help customers find additional high value-add use cases for AIP-on-Foundry outside of its power-alley of supply chain optimization use cases. We're launching with 2025/2026 revs growth estimates of 28%/25%, above the Street consensus, and see upside potential to even these estimates.

Valuation is Hard to Overcome

While we certainly understand that valuation isn't straightforward for stocks that are well-positioned into large tech paradigm shifts (in this case Al-Data), that are accelerating and for which an improving narrative can make the revs/FCF multiple less important. In our view Palantir deserves a material multiple premium to most/all other public software firms. That said, 49x revs and 124x FCF on 2025 estimates was simply too high a hurdle to get over, and we don't mind staying patient for a better entry point.

Valuation:

Palantir shares are +333% YTD and attracting more interest from institutional investors.

This is not "just" a retail-driven or "meme" stock, as the material revs growth acceleration and margin gains reflect very strong fundamentals. Our $80 price target - near the high end of the Street range - is based on a CY26 EV/FCF multiple of 110x, a significant but we believe justified premium to the high-growth peer group.

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Disclaimer

The user HedgeY holds no position in NasdaqGS:PLTR. Simply Wall St has no position in any of the companies mentioned. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.