Jefferies analyst Brent Thill is flagging additional downside risk for Palantir stock, arguing that the company's stretched valuation is likely to keep downward pressure on the shares even after a large retreat earlier in the year.
Palantir's shares have dropped 27% year to date, yet Thill notes the stock still trades at a high multiple relative to the broader software group despite a pronounced compression in trading ratios. In November, the shares were trading at about 73 times forward revenue before sliding to roughly 31 times, a level that remains almost double the next most expensive large software name.
"We're making a call on valuation, not on fundamentals," Thill wrote in a Friday note to clients. He acknowledged that Palantir's underlying business metrics have been improving rapidly and that the company's competitive differentiation has strengthened while its total addressable market has expanded. However, Thill contends that the downside risk coming from the current trading valuation more than offsets the upside from those improving fundamentals.
Jefferies' view centers on the idea that the premium valuation makes Palantir especially vulnerable to shifts in market narrative. The analyst specifically points to possible changes in sentiment around artificial intelligence enthusiasm and the broader software sector's momentum as catalysts that could accelerate a return to more conservative valuation levels. Thill warned that the current multiple "makes PLTR especially susceptible to changes in narrative," including worries about growth slowing or AI-related optimism cooling. "We believe that the declining sentiment in the software industry could expedite PLTR's return to more sustainable valuation levels," he added.
Those concerns come even as the company posted a very strong fourth quarter. Palantir reported accelerating revenue, stronger U.S. commercial growth, expanding operating margins, and provided initial guidance for 2026 that signaled continued momentum across key metrics. Despite the positive print, the results did not sustain the elevated valuation - the stock fell about 21% after the quarterly release.
Following his analysis, Thill kept Jefferies' Underperform rating on Palantir and held the firm's $70 price target.
Key points
- Jefferies sees further downside for Palantir driven by valuation compression despite improving fundamentals.
- Palantir shares have fallen 27% year to date but still trade at roughly 31 times forward revenue, down from about 73 times in November.
- Strong fourth-quarter results and initial 2026 guidance did not prevent a roughly 21% post-earnings decline in the stock.
Risks and uncertainties
- Market sentiment shifts - particularly around AI enthusiasm - could accelerate valuation declines for Palantir, affecting the software sector.
- Any perception of slowing growth might prompt further multiple compression for high-valuation software names.
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