Investors should never take predictions at face value. Here you will find the data needed to make an informed decision about these two companies.
Palantir helps companies manage and understand complex data. The main platforms, Gotham and Foundry, integrate information and artificial intelligence models into an ontology, a digital representation of the relationships between real-world objects. Users can interact with the ontology through analytical applications that surface insights to improve decision making. Palantir says its ontology-based software is a key differentiator.
Last year, Palantir debuted AIP (Artificial Intelligence Platform), which expands Foundry and Gotham with support for large language models, allowing companies to integrate generative AI into analytics applications. Some analysts are impressed with the product. For example, Forrester research has recognized Palantir as a leader in artificial intelligence and machine learning platforms.
Other analysts are less impressed. Advice Gartner didn’t even mention Palantir in its latest report on data science and machine learning platforms, scoring the company below a dozen other vendors for its data integration tools. Additionally, RBC Capital analyst Rishi Jaluria told CNBC that Palantir “doesn’t seem to have anything really differentiated when it comes to generative AI.”
Palantir reported solid financial results in the second quarter. Revenue rose 27% to $678 million, the fourth consecutive acceleration, and non-GAAP net income rose 80% to $0.09 per diluted share. CEO Alex Karp attributed the strong quarter to a “relentless wave of customer demand for artificial intelligence systems that go beyond the merely performative and academic.”
In the third quarter, Palantir announced a $100 million contract with the US government, giving more military personnel access to its AI targeting tools. The company also said that gas and oil giant BP will adopt AIP to “improve and accelerate human decision-making with suggested courses of action based on automated analysis of the underlying data.”
The problem with Palantir is its sky-high valuation. Wall Street expects adjusted earnings to grow 22% over the next year. That makes the current valuation of 134 times adjusted earnings outrageous.
Wall Street’s average price target for Palantir is $28 per share, implying 35% downside from the current share price of $43. By that measure, Palantir is the most overvalued stock in the US S&P500.
I doubt Jaluria is right when he says Palantir is down 79%, but I do believe the stock is headed for a serious correction at some point. Potential investors should avoid Palantir until the stock price seems more reasonable, and current shareholders should consider reducing their positions.
Super Micro Computer builds servers, including full server racks equipped with storage and networking, to provide a turnkey data center infrastructure solution. In-house manufacturing capabilities and modular design allow the company to bring new products to market faster than its competitors. That time-to-market advantage has helped Super Micro gain a leading position in artificial intelligence servers.
Super Micro reported mixed results for the fourth quarter of fiscal 2024 (ended June 30). Revenue rose 143% to $5.3 billion thanks to strong demand for AI computing infrastructure. But gross margin fell about 6 percentage points to 11.2%, and non-GAAP net income rose only 78%. In comparison, profits grew more slowly than sales, which may indicate a loss of pricing power due to increased competition.
However, management said the margin contraction was due to costs associated with direct liquid cooling (DLC) components. Liquid cooling is more efficient than air cooling, so Super Micro has invested heavily to position itself as a leader as the technology takes root.
That could increase its position in the AI server market. Regardless, management expects gross margin to return to normal (14% to 17%) by the end of fiscal 2025 as DLC components ship in higher volumes.
The problem with Super Micro is regulatory uncertainty. In August, short seller Hindenburg Research accused Super Micro of accounting manipulation The Wall Street Journal then said the company was under investigation by the Justice Department. Neither situation has been resolved and the stock could fall further than the 20% forecast by Wells Fargo analyst Aaron Rakers depending on the outcome.
However, Wall Street still expects the company’s profits to rise 51% over the next year. That makes the current valuation of 20.8 times earnings cheap.
Patient investors comfortable with the risks should consider buying a position, but I would keep it fairly small until regulatory uncertainty clears. Alternatively, shareholders nervous about Hindenburg’s allegations or the Justice Department’s investigation could consider selling their positions.
Consider the following before purchasing shares in Palantir Technologies:
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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine holds positions at Palantir Technologies. The Motley Fool holds positions in and recommends BP and Palantir Technologies. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
Two popular AI (artificial intelligence) stocks that need to be sold before they plummet 20% and 79%, according to certain Wall Street analysts. originally published by The Motley Fool
