PLTR stock backs down after US credit downgrade, awaits earnings on Monday

Palantir stock reports earnings on Monday, August 7.
PLTR stock climbed as much as 161% from its May 8 close.
Wedbush Securities’ Ives gave PLTR a $25 price target.
Fitch's US downgrade has caused the indices to fall for a second straight day.

Palantir (PLTR) stock fell about 1% on Thursday after losing 5.1% on Wednesday as the broad equity market contracted from the bearish news that Fitch had downgraded the US government’s credit rating. Indices are down across the board on Thursday, with the Dow Jones Industrial Average (DJIA) losing 0.2%, the NASDAQ Composite dropping 0.3%, and the S&P 500 giving back 0.4%.

Palantir stock is trading near $18.78 at the time of writing.

On the daily chart, Palantir suffered a bearish candle on Wednesday that could signify a technical end to the rally that began all the way back on May 9 and added as much as 161% to Palantir’s share price. Still, bulls remained eager to buy up what bears were selling on Wednesday, so this story stock (artificial intelligence) still has a lot going for it, not to mention nearby support levels.

Palantir Stock News: Macro sentiment negative, but quarterly results arrive soon

The macro picture seems to be taking a turn for the worse for equities. Fitch’s downgrade of the US government’s credit rating from AAA to AA+ on Wednesday led to a broad sell-off that included Palantir stock. The ISM Manufacturing PMI on Tuesday arrived short of consensus, with the sector in contraction for the ninth month in a row. Wednesday’s ADP Employment Change data for July also showcased a tighter US labor market, which makes hawkish Federal Reserve policy more likely.

With all that said, Palantir’s quarterly earnings results arrive next Monday, August 7. Investors are not unwise to hold out for a successful earnings call. The PLTR rally over the past three months was kick-started by the Q1 earnings report that showed the artificial intelligence (AI) company offering up its first GAAP profit ever, albeit a single penny per share. Still, the market was spurred on by an optimistic outlook that should show up in this latest quarter’s results.

Wall Street analysts have placed consensus for the second quarter at a repeat of Q1’s earnings results and revenue of $534.3 million – a mere 1.7% growth over the prior quarter that should be easy to beat.

Well-known Tesla (TSLA) and tech booster Dan Ives, a prominent analyst for Wedbush Securities, initiated coverage on Palantir last Friday with a bullish $25 price target on the stock. The price target is now the highest on the Street, but Ives defended it by calling Palantir the “Messi of AI”.

“In a demand environment that looks to evaluate the legal, ethical, and trustworthy effects of AI deployment, Palantir’s existing relationships with secure organizations such as the CIA, DoD, JPM, Cisco, AWS, Google and MSFT among others, validate PLTR’s excellence in security and compliance demonstrating the company’s ability to provide trusted solutions in sensitive environments,” Ives wrote in a note to clients.

Ives’ Outperform rating on Palantir stock is well off the mainstream view, however. The average Wall Street analyst price target is $13.50, based on forecasts taken from the past three months. The most common view is just that Palantir is overvalued based on PLTR trading for a $40 billion market cap while generating slightly in excess of $2 billion in annual sales.

AI stocks FAQs

What is artificial intelligence?

First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.

What are AI applications?

There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.

What are some stocks that fit into the AI field?

Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.

Could artificial intelligence generate another stock bubble?

Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.

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