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Although Palantir's (PLTR) new partnership with Nvidia (NVDA) could move the needle positively for PLTR, the company appears to be facing increased competition and still trades at extremely high valuations. Additionally, the evolution of artificial intelligence (AI) could hurt the company's business, and evidence suggests that the Street remains somewhat skeptical about software stocks. Also noteworthy is that the company's co-founder and chairman, Peter Thiel, recently indicated that he planned to unload a large amount of PLTR stock.
Since all of PLTR's weaknesses and negative catalysts far outweigh its deal with Nvidia, I do not recommend that investors purchase PLTR stock at this point.
About PLTR Stock
Specializing in data analytics, Palantir developed an artificial intelligence platform (AIP) that enables organizations to easily utilize AI to draw conclusions based on their data. Based in Miami, Palantir has historically focused on helping governments analyze data.
Last quarter, Palantir's revenue jumped 70% versus the same period a year earlier to $1.4 billion, while its net income attributable to common stockholders soared to $608.7 million in Q4 from $79 million in Q4 2024.
The company's market capitalization is $361 billion, and its forward price-to-earnings ratio is 148x, while it is changing hands for 48.2x its book value.
Palantir's New Deal With Nvidia
Palantir is partnering with Nvidia to develop “AI OS reference architecture” for organizations. The product, which is supposed to enable enterprises to easily create AI data centers and launch AI apps, utilizes Nvidia's AI hardware and supports PLTR's software.
In my view, the agreement could be a modest, positive catalyst for Palantir's financial results. The architecture could be quite useful for many organizations looking to implement AI at scale, but other companies have likely launched similar offerings already. The offering could be particularly useful for foreign governments that are looking to implement massive amounts of AI relatively quickly but that have established little of the necessary infrastructure to do so.
Increased Competition and a Valuation That Remains Huge
A Seeking Alpha columnist recently warned that Palantir is facing increasing competition from the hyperscalers, and there is indeed evidence that the hyperscalers are intensively scaling up and marketing software that helps organizations implement AI. For example, Alphabet's (GOOG) (GOOGL) AI offering for enterprises, Gemini Enterprise, “has already sold more than 8 million paid seats in roughly four months,” PYMENTS reported last month.
Meanwhile, Amazon (AMZN) has noted that “Amazon Bedrock powers generative AI for more than 100,000 organizations worldwide.” For its part, Microsoft's (MSFT) Azure recently unveiled AI agents tailored to helping organizations advance their “AI capabilities.” Given the hyperscalers' huge customer base and marketing capabilities, they appear well-positioned to meaningfully slow the growth of Palantir's AIP.
Despite this major threat, PLTR stock, as I noted above, still trades at an extremely high valuation.
The AI Threat and the Street's Reservations About Software Stocks
Some prognosticators have warned that Palantir's analytics business could be meaningfully hurt by the proliferation of AI tools. Software firms that have obtained a great deal of valuable data in specific areas, such as Intuit (INTU), are likely to be somewhat protected from AI competition for some time. That's because AI agents won't have the necessary data to make good substitutes for such software for years.
On the other hand, Palantir, whose commercial business seems to be based on analyzing highly diverse data from a variety of businesses, could easily be supplanted by top-notch AI agents in the medium term. That's because the best AI agents can also easily analyze data supplied by companies.
And in the shorter term, the Street's skepticism about software stocks is likely to keep PLTR stock from breaking out. Indeed, many software stocks remain well off their six-month highs.
Thiel's Sale of PLTR Stock
Earlier this month, Palantir's chairman noted in a regulatory filing that he intended to sell 2 million shares of PLTR stock. Although Thiel still owns much more PLTR stock than he sold, the move does not radiate a great deal of confidence in the outlook of PLTR stock.
On the date of publication, Larry Ramer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
