Jefferies' Latest Warning on Palantir Sends Clear Message: Stay Cautious on PLTR Stock

Palantir Technologies (PLTR) just posted one of the strongest quarters in its history. Revenue grew 93% year-over-year (YoY), the fastest pace the company has ever reported, driving shares higher by more than 20% the day after the Q2 report.

Yet not everyone on Wall Street is celebrating. Jefferies analyst Brent Thill kept his “Underperform” rating on the stock, and his reasoning is worth paying attention to if you own shares or are thinking about buying in.

Here is what PLTR investors need to know about the split opinion forming around one of the market's hottest AI stocks.

Why Jefferies Is Staying Cautious

According to Seeking Alpha:

• Jefferies raised its price target on PLTR stock slightly, to $80 from $70.
• However, the investment firm kept its “Underperform” rating in place, meaning it still expects the stock to lag the market.
• "We are fundamental fans of PLTR, but valuation leaves little room for a normalization in growth or execution slippage," Thill wrote in a note.
• Bulls point to accelerating revenue, a net retention rate of 157%, and bigger deal sizes as proof the business is still gaining strength.
• Bears focus on tougher comparisons ahead, slowing international growth, and a stock price that already assumes years of continued outperformance.
• Thill sees better risk-reward in hyperscalers like Microsoft (MSFT) and Amazon (AMZN), as well as beaten-down software stocks such as Snowflake (SNOW).
• RBC Capital Markets kept its own “Underperform” rating and a $90 price target, with analyst Rishi Jaluria pointing to slowing international revenue as a concern even as commercial and government segments beat expectations.
• Morgan Stanley's Sanjit Singh noted that Palantir has now accelerated revenue growth every quarter for three straight years, an unusual streak, especially with operating margin expanding from 25% to 60% over that stretch.
• Hargreaves Lansdown analyst Matt Britzman called the quarter proof the business is in a genuine expansion phase, even while acknowledging the valuation remains lofty. 

How Did Palantir Perform in Q2?

Palantir’s U.S. business now accounts for over 81% of total revenue and grew 115% YoY. U.S. commercial revenue accelerated to 149% growth, while U.S. government revenue climbed 90%.

Palantir closed 220 deals worth $1 million or more during the quarter, a company record. It also generated $1.22 billion in adjusted free cash flow, which indicates a 63% margin. Net dollar retention hit 157%, up 700 basis points from the prior quarter. It means that existing customers increased spending by 57% over the last 12 months. 

On the back of those numbers, Palantir raised its full-year revenue guidance to a midpoint of $8.154 billion, representing 82% growth for the year, the company's largest-ever full-year guidance increase.

Palantir CEO Alex Karp used much of the earnings call to push a broader idea he calls sovereign AI. His argument is that companies handing their data over to outside AI labs are giving away the very information that makes their businesses valuable.

"You own the weights, you own the alpha, you own everything," Karp said on the call, pointing to Palantir's work fine-tuning models on an Nvidia (NVDA) stack rather than relying on outside providers.

Chief Technology Officer Shyam Sankar echoed that theme, describing an approach he calls “benchmaking,” where customers build benchmarks around their own operations rather than relying on generic industry tests.

What Next for PLTR Stock?

The split between Palantir's operating results and its stock valuation is the story here. The business itself is firing on all cylinders, with accelerating growth across every segment and record cash flow. But firms like Jefferies and RBC argue PLTR's stock price already reflects years of that success continuing without a hitch.

Out of the 29 analysts covering PLTR stock, 21 recommend “Strong Buy,” six recommend “Hold,” one recommends “Moderate Sell,” and one recommends “Strong Sell.” The average PLTR price target is $198.41, above the current price of $171. 

Notably, any slowdown in growth or slip in execution could drive PLTR stock lower over the next 12 months, given how much good news is already priced in.