Morgan Stanley downgrades Palantir (PLTR.US) rating, stock price faces further downside risk.

The stock price of Palantir Technologies (PLTR.US) may further decline. Morgan Stanley analyst Sanjit Singh gave the stock a "underweight" rating on Monday with a target price of $60, implying about 20% downside potential. After this news was released, the data analytics and artificial intelligence company's stock dropped by 5.2% to $75.74. Morgan Stanley had previously given the stock an "underweight" rating but had removed the rating in November 2023 to reassess its investment logic. It is worth noting that Palantir became one of the top-performing stocks in the S&P 500 index in 2024 with a gain of over 340%. "In the early stages of the AI era, Palantir achieved a lot of success," Singh admitted. When the firm downgraded its rating from "Equal Weight" to "Underweight" in August 2023, it underestimated several key factors. He pointed out that Palantir's Artificial Intelligence Platform (AIP) and successful marketing strategies have driven accelerated growth. Data shows that the company's US commercial sector growth rate for the 2024 financial year is about 50%, significantly higher than the 36% in the 2023 financial year. Additionally, Morgan Stanley did not anticipate the huge successes Palantir had in government contracts, such as the renewal of the Army Vantage contract with the US military, worth $619 million. Despite acknowledging positive adjustments in Palantir's position in the generative AI field, Singh believes that these positive factors are already reflected in the current stock price. "Despite recognizing the company's excellent execution and growth momentum, we believe these successes are fully priced in at the current high valuation, and business momentum seems to be stabilizing." As a major beneficiary of the artificial intelligence boom, Palantir has attracted widespread attention with its AIP technology. When the company first launched AIP in 2023, market demand was strong, reflecting "institutional demand for unmet needs for intelligent and efficient enterprise software." Despite the bearish outlook from Morgan Stanley, other analysts remain optimistic about the stock. For example, Wedbush analyst Dan Ives increased Palantir's target price to $75 at the end of December and stated in a report on Monday that Palantir remains "one of the best software investment choices for the AI revolution by 2025." Government contracts are also a key factor driving Palantir's stock price. Since 2008, Palantir has been working with the US Army and has received most of its revenue from federal agencies. In December 2024, the company announced that it had received FedRAMP High Authorization, allowing its full suite of products to handle sensitive federal workloads, which pushed its stock price up by 7%. Furthermore, Palantir has entered into a new partnership with military contractor Booz Allen Hamilton (BAH.US) and has been selected as the primary software integrator for the US Special Operations Command Task Force system, paving the way for future AI pilot projects.