Palantir’s 135% AI Surge Set for Earnings Showdown

Palantir Technologies Inc. faces a fresh test of whether it can justify the artificial intelligence hype when it reports earnings after markets close on Monday.

(Bloomberg) — Palantir Technologies Inc. faces a fresh test of whether it can justify the artificial intelligence hype when it reports earnings after markets close on Monday.

The data analysis firm’s stock has rallied 129% in the three months since its last report, with chief executive officer Alex Karp talking up the power of the firm’s AI products and the demand for them. That’s inflicted big losses on short sellers betting against the stock, but hasn’t won over Wall Street analysts tracked by Bloomberg who have twice as many sell ratings as buys.

“While we know Palantir is involved with AI, much of its technology remains unproven,” David Mazza of Roundhill Financial Inc., which sponsors the Roundhill Generative AI & Technology ETF, said in an interview. “Names of this nature, meaning anything involved with AI, will have to start showing greater progress to justify the multiple.”

Palantir’s ability to deliver on the hype around its products will be central to how well its earnings report is received by investors, even though its executives typically talk about success in terms of decades, rather than quarters. Options trading in the stock is implying a move of about 15% in either direction the day after the report, according to data compiled by Bloomberg. The stock fell as much as 6.5% on Monday.

While the firm is well-positioned to benefit from AI and big data trends, the stock’s valuation is “rich” at about 16 times projected sales, Monness Crespi Hardt & Co. analyst Brian White wrote in a research note on Aug. 3. “We believe the darkest days of this downturn are ahead of us,” he said.

Questions also remain about the company’s pricing strategy for AI products, which has been notably absent from the discourse, said Brent Thill at Jefferies LLC.

Still, others view the firm as a long-term bet. Palantir works with governments and corporations with sensitive networks, offering services to analyze information like criminal databases, DMV records or phone data to aid with decision making.

“They’ve been doing this since 2004, so they’re not some company that just jumped into the growth trend,” Ken Mahoney, CEO of Mahoney Asset Management, said in an interview, adding that Palantir’s government contracts “verify that they have some really great products and services.”

Others, like Wedbush Securities’ Daniel Ives, are optimistic. Ives expects Palantir to capitalize on its AI products over the next six to 12 months, which should provide enough evidence to push valuation multiples even higher, he wrote on July 28.

The stock’s ascent has left short sellers with paper losses of about $1.7 billion, according to data from S3 Partners LLC. They’ve begun to retreat, however, with short interest as a percentage of shares available to trade falling to about 7% from a high of about 9% in May.

While lacking the retail investor following of meme stocks such as GameStop Corp. or AMC Entertainment Holdings Inc., “there is persistent interest,” in Palantir, according to Roundhill’s Mazza. While traders will look to earnings for signs of progression, “barring some kind of catastrophic event, that long-term interest doesn’t really go away,” he said.

Tech Chart of the Day

Apple sank 4.8% on Friday, as disappointing results led to the biggest one-day percentage drop for the iPhone maker since September. The decline took the company’s market valuation decisively below the historic $3 trillion level, and shares also closed below their 50-day moving average for the first time since January, a sign of weak near-term momentum trends.