Palantir Analysts Weigh In On Sustainability Of Q2 Growth

Palantir Technologies Inc. PLTR reported better-than-expected second-quarter revenue and in-line bottom-line results Thursday.

The company also issued upbeat guidance for the third quarter.

The Palantir Analysts: RBC Capital Markets analyst Rishi Jaluria assumed coverage of Palantir stock at Sector Perform and increased the price target from $20 to $25.

Morgan Stanley analyst Keith Weiss maintained an Underweight rating and increased the price target from $19 to $22.

RBC Positive On Palantir's Competitive Moat: Palantir's second-quarter performance was a beat across the board, and to top it, the company raised the free cash flow guidance by $150 million to $300 million, RBC analyst Jaluria said.

The outperformance, the analyst said, was due to continued strength in government, with multiple deals signed in the second quarter.

Commercial performance was also strong, as the segment saw revenue acceleration and the addition of 20 net new customers, he said. 

"We are positive on PLTR's competitive moat, differentiated technology, and unique GTM," Jaluria said.

With these positives balanced by a steep valuation and concerns regarding sustainability of growth, RBC said it prefers to stay on the sidelines.

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Morgan Stanley's Outlook On Palantir: Following the strong quarterly results, investor debate is likely center around the durability of growth and the potential to sustain an overall 30%-plus growth rate going forward, Morgan Stanley analyst Weiss said.

Total contract value booked during the second quarter grew 175% year-over-year to $925 million, the analyst said. About 90% of these contracts are signed with companies in which Palantir made a strategic investment, he added.

"While the company looks to continue using the strategic investment program as a distribution method, we worry this level of growth is not sustainable," the analyst said.

Instead, the 40% year-over-year billings growth reported in the quarter is a better indicator of growth in the quarter, Weiss said.

The quarterly results showed good progress on four key areas such as salesforce hiring, increasing modularity appealing to new customers, accelerating net new customer adds and progress in the channel, the analyst said. These factors point toward the sustainability of a more durable growth story, he added.

Feinseth On Palantir's Upside Potential: Palantir reported 49% year-over-year revenue growth as government sales spiked 66% to $232 million, Tigress Financial's Iven Feinseth said.

Total commercial revenue climbed 28% to $144 million, he added.

Palantir also increased its third-quarter guidance, projecting a revenue increase of 33% to $385 million as it continues to gain new customers, the analyst said.

Palantir is also expanding through corporate partnerships and has partnered with International Business Machines Corporation IBM and Fujitsu to resell its services. Palantir is working with Amazon, Inc. AMZN Web Services for cloud hosting, Feinseth said. 

Palantir also expanded its service market to include smaller companies through a monthly subscription model and has invested in 12 startups started by former Palantir employees and brought them on as customers, the analyst said.

Palantir, the analyst said, continues to win new contracts, highlighting the strength of its software and AI capabilities.

"I believe significant upside exists from current levels and continue to recommend purchase," Feinseth said.

PLTR Price Action: Palantir shares were last seen down 0.54% at $24.76, giving back some of the 11.4% gain the stock notched Thursday in reaction to the quarterly results.

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