What happened
Shares of Palantir Technologies fell 7% on Wednesday, following bearish analyst commentary.
Palantir's revenue climbed 36% year over year to $392 million in the third quarter. That marked a notable deceleration from the 49% growth the data software provider delivered in the second quarter.
The slowdown was enough for RBC Capital analyst Rishi Jaluria to cut his rating on Palantir's stock from sector perform to underperform and slash his share price forecast from $25 to $19.
Jaluria was particularly concerned with the decline in Palantir's revenue growth rate in its core government business, which fell to 34% from 66% in the second quarter. "We believe Palantir got direct benefits from COVID-related spending and those benefits have already faded," Jaluria said.
Moreover, although Palantir saw its U.S. commercial revenue rise by an impressive 103% in the third quarter, Jaluria argued that this level of growth is unsustainable. He noted that Palantir's commercial business has benefited from its strategy of investing in newly public companies in exchange for them agreeing to use its software. Jaluria believes these investments will have less of an impact over time.
For these reasons, Jaluria is now less confident that Palantir can achieve its revenue growth target of at least 30% annually through 2025.
Now what
As a premium-priced growth stock, Palantir is highly exposed to anything that would make investors question whether it can reach its long-term expansion goals. Even after today's stock price decline, Palantir's shares trade for more than 100 times its projected earnings in 2022. Thus, should more analysts raise concerns about its growth projections, Palantir's share price could have further to fall.