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Palantir Technologies (NASDAQ: PLTR) may be one of the most polarizing AI stocks on the market. Some swear by it, and others wouldn't touch it with a 10-foot pole. I'm usually in the 10-foot pole camp, but I would happily change my stance if the stock returned to a reasonable level.
After the most recent round of sell-offs, Palantir stock is around 25% off its all-time high. This is a pretty significant discount to where it was trading, but is it enough to warrant buying the stock before Palantir reports Q1 earnings on May 5?
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Palantir's stock has seen big movements following earnings lately
One thing I'm fairly certain of is that Palantir's stock will likely make a large move on the day following earnings; the question is whether that move will be up or down. For three of its four 2024 quarters, Palantir's stock moved up following earnings. But all four saw double-digit movements.
| Quarter | Date After Earnings | Price Movement |
|---|---|---|
| Q1 | 5/7/2024 | (15%) |
| Q2 | 8/6/2024 | 10% |
| Q3 | 11/5/2025 | 23% |
| Q4 | 2/4/2025 | 24% |
Data source: YCharts and Palantir.
So, which way will Palantir's stock move after its Q1 earnings report on May 5?
The bull case: Palantir has a history of beating expectations
Palantir's management team typically under-guides revenue and over-delivers in the actual announcement. This is far better than the alternative, so I won't dock any points because of management's strategy.
Management predicts 36% growth for Q1, the exact same rate it posted during Q4. Historically, investors should expect a percentage point or two higher than this, but we'll see what management delivers.
Even more important than that is Palantir's outlook, which could be harmed by economic sentiment. It's no secret that Palantir's software isn't cheap. This is evidenced by the fact that it only has 711 total commercial customers, which generated $372 million in revenue during Q4. If you annualize that figure and divide it by the customer count, you get an average customer value of $2.09 million, which excludes many companies from using Palantir's product.
However, if Palantir's potential customers see this software as mission-critical and a way to drive efficiencies, then it could be a no-brainer spending item, contributing to Palantir's management giving upbeat guidance for the rest of the year.
While this is the bull case for Palantir and one that I mostly agree will come true, the valuation is just too high for me, so I think the stock will move lower following Q1's earnings announcement.