What Happened:

Shares of data-mining and analytics company Palantir (NYSE:PLTR) fell 5.27% in the morning session after Morgan Stanley analyst Keith Weiss downgraded the stock's rating from Equal-Weight (Hold) to Underweight (Sell) with a $9 price target. The price target implied a potential 40% downside from where shares were traded when the downgrade was announced. This action was driven by concerns surrounding the near-term outlook of Palantir's AI products, and a valuation premium that poses an unfavorable risk-reward. Weiss added that visibility into the new Artificial Intelligence Platform (AIP) remained low, raising worries regarding the government segment's ability to offset a potential decline in revenues, as estimates have baked in a growth acceleration in the second half of the year. 

It is worth recalling that, during the Q2'2023 earnings call, management provided some insights into the progress made so far on the new AI platform, stating, "We have no problem monetizing. We make $2.9 million per commercial customer across the world. We will figure out how to monetize it. First, we're teaching the market what it is. We're getting people on Board." 

Weiss's downgrade shows that Morgan Stanley thinks there is too much good news priced into the stock with regards to Palantir's AI prospects without enough concrete evidence. This is a major flashpoint in the markets today as investors debate how large the AI opportunity will be, when it will be realized, and who the true winners and beneficiaries are.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Palantir? Access our full analysis report here, it's free.

What is the market telling us:

Palantir's shares are a little volatile and over the last year have had 42 moves greater than 5%. 

The previous big move we wrote about was 24 days ago when the stock dropped 12.5% on the news that the company reported second quarter results that missed analysts' revenue estimates. Earnings per share (EPS) also slightly expectations. In addition, next quarter's revenue guidance came in slightly below Wall Street's analysts' expectations. 

On the other hand, the company raised full year guidance for both revenue and adjusted operating income. However, this updated outlook calls for an acceleration in performance in the second half of the year. The market seems to concerned about the aggressiveness of this guidance. 

Overall, it was a mixed quarter for the company, with the top line miss potentially causing concern among investors.

Palantir is up 133% since the beginning of the year, but at $14.87 per share it is still trading 25.6% below its 52-week high of $19.99 from July 2023. Investors who bought $1,000 worth of Palantir's shares at the IPO in September 2020 would now be looking at an investment worth $1,570.

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