What happened
Week to date, shares of Palantir Technologies (PLTR 3.70%) were down 16.5% through Thursday's closing price, according to data provided by S&P Global Market Intelligence.
One analyst downgraded the stock on valuation concerns following the company's most recent earnings report in May.
So what
Raymond James analysts still like Palantir's opportunity to capitalize on the growing demand for artificial intelligence (AI). The firm still believes the stock can outperform, but downgraded the shares from a strong buy rating.
It seems a prudent call. The stock has gotten expensive in a short time. It was recently trading at over 16 times trailing-12-month revenue after it doubled in just the last month.
The market cheered the company's second consecutive profitable quarter, while revenue increased by 18% year over year.
One comment on the earnings call got investors' attention. CEO Alexander Karp said that demand for the company's AI platform "is nothing I've ever seen in 20 years of being involved in Palantir." That could point to an acceleration in top-line growth.
Now what
The stock should be on investors' radar as AI will be a long-term growth catalyst. Management noted that the U.S. commercial business reaccelerated last quarter despite a typically slow first quarter. Palantir is seeing meaningful growth and upsell opportunities from new customers, and management expects 2023 to be the first full year of profitability on a GAAP basis.
Depending on how much profit the business can support over the next five years, the stock could still deliver returns from here. Analysts currently project a 73% compound annual increase in earnings over that period, as management begins to focus on establishing a sustained path to long-term profitability.
