A Motley Fool analyst argues Palantir's stock may deliver lackluster returns through 2028. He points to rising competition from AI labs such as Anthropic and OpenAI and a price-to-sales ratio of 81.
Palantir shares trade at $209.05, up 5.17% on the day, but Motley Fool analyst Keithen Drury questions whether the stock has gotten ahead of itself. He says history suggests the answer is not one shareholders will like.
Competition from AI labs is growing
Palantir built its name on plug-and-play AI software that lets clients mine their internal data for insights. The product first targeted government users before moving into the commercial market. Drury notes, however, that Palantir is no longer the only game in town.
Anthropic and OpenAI offer AI products that companies can use, and these could become more popular than Palantir's, which could slow its growth. Wall Street analysts already project a slowdown: 84% growth in Q3, 75% in Q4, compared with 93% in Q2, and 50% next year.
Still, Drury notes that Wall Street has been consistently wrong on its Palantir projections, because growth has continued to accelerate quarter after quarter. Yet as more companies become comfortable deploying tools from OpenAI and Anthropic, he says this may pose a sizable headwind, since most of the platform's capabilities can be recreated for far less than Palantir charges.
A price-to-sales ratio of 81
Drury calls Palantir very expensive at a price-to-sales ratio of 81. Software stocks are generally considered expensive above 20 or 30 times sales.
For comparison, Anthropic is expected to go public with a market cap of about $2 trillion sometime in November. Anthropic told investors in July that its annual run rate would be about $65 billion, so a multiple of 81 would imply an IPO market cap of $5.3 trillion.
Companies that reach such high multiples have a terrible track record of long-term share price performance in the following years, Drury writes. Even if Palantir keeps growing rapidly, its stock could trade sideways for an extended period to bring its valuation down, or fall if an AI lab disrupts it. He expects lackluster returns through 2028.
Source: The Motley Fool
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