What happened

A day after shares of Palantir Technologies (PLTR 2.70%) plunged due to a disappointing quarter, analysts aren't giving investors much reason to get excited. Shares of Palantir are down another 6% on Tuesday as Wall Street adjusts expectations for the remainder of the year.

So what

On Monday, data analytics company Palantir reported revenue up 26% but its loss of $0.09 per share in the quarter was worse than analysts had expected. The company also forecast third-quarter and full-year revenue in a range that fell below the consensus estimate.

A day later, Wall Street analysts are reacting. Palantir was downgraded to a sell from a hold at Deutsche Bank, with analyst Brad Zelnick saying the second-quarter report leaves "little to hang our hat on." Zelnick, who lowered his price target to $8 from $11, said that Palantir's revenue seems to be decelerating at the same time the company is "aggressively" spending, elevating its risk profile.

Elsewhere, Citigroup analyst Tyler Radke lowered his price target to $6, from $7, and kept a sell rating on the shares, and Morgan Stanley analyst Keith Weiss lowered his target to $11 from $13 but rates the shares as equal weight. Radke said the recent quarter demonstrates the "diminishing tailwinds" of COVID-related contracts.

Palantir is best known for its government business, but has been aggressively trying to build its commercial operations. A slowdown in the defense business was the primary culprit behind the lowered expectations, and analysts say there isn't much clarity about when that trend will reverse.

Now what

Palantir went public in late 2020 and quickly jumped as much as 300% on investor excitement about its technology, which is credited with helping the U.S. government find Osama bin Laden. But the stock has been on a downward trajectory, for the most part, since early 2021, and coming out of earnings season it isn't clear when that pattern will reverse.

The tech is great, but it is expensive, and government contractors typically have trouble growing at rates that the market looks for from commercially-focused businesses. CEO Alex Karp said during the company's post-earnings call that he is targeting $4.5 billion in revenue in 2025, up from an expected range of $1.9 billion to $1.902 billion in 2022. But even if he gets there, the stock is still arguably overvalued.

Even after the declines, Palantir still trades at more than 10 times sales, and more than four times the revenue figure the company hopes to achieve three years from now. By comparison, another government-focused IT company, Booz Allen Hamilton, is valued at less than 1.5 times the revenue it generated over the past 12 months.

It is possible to argue that Palantir -- thanks to its potential to grow outside of government IT -- should be valued at a premium to Booz Allen. But the quarter did little to suggest that Palantir deserves the sort of premium it currently enjoys, and the stock is fading as a result.