Shares of Palantir Technologies (PLTR -13.99%) are falling on Tuesday. The companyâs stock slid 14.1% as of 10:10 a.m. ET and was down as much as 14.6% earlier in the day. The move comes as the S&P 500 and the Nasdaq Composite fell by 1% and 1.2%, respectively.
Shares of the big data analytics and artificial intelligence (AI) software company were falling after the company released its first-quarter earnings.
The numbers werenât enough
Palantir reported Q1 earnings per share (EPS) of $0.13 on sales of $884 million. The companyâs revenue was up 39% year over year, beating Wall Street expectations. The strong growth was driven primarily by major U.S. sales, up 55% year over year. Expecting this U.S. strength to continue, Palantir raised its 2025 full-year forecast.
Despite the seemingly positive report, there was a key weakness that led to todayâs stock slide: Global sales declined 10% year over year. The international weakness is a concerning sign that calls into question Palantirâs ability to continue its overall growth at the current pace.
Image source: Getty Images.
A valuation issue
Jefferies analyst Brent Thill was concerned that Palantir couldnât continue justifying the massively inflated valuation of its stock, saying, âWhile fundamentals have strengthened in recent quarters, [Palantirâs valuation] has risen to unprecedented levels.â He went on to describe it as âirrational.â
I agree. Its price-to-earnings ratio (P/E) of 650 is much too high. There is no doubt that Palantir, by and large, is executing at a very high level. A valuation this high means it must execute perfectly for years. The shrinking global demand calls into question its ability to do so. I would stay away from this stock unless it retreats significantly to a level that could be considered rational.
Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group and Palantir Technologies. The Motley Fool has a disclosure policy.
