The logo of U.S. software company Palantir Technologies is seen in Davos, Switzerland, May 22, 2022. REUTERS/Arnd Wiegmann//File Photo
(Reuters) - Palantir Technologies shares surged 18.7% in premarket trading on Tuesday, as the data and analytics company's strong fourth-quarter revenue growth led by increased demand for its AI offerings enthused investors.
Revenue from Palantir's commercial segment rose 32% year-over-year to $284 million in the reported quarter, helping the company post $608 million in overall revenue which beat LSEG estimates.
The company's AI growth offset slowdown at its government segment, which contributed more than half of total quarterly revenue, impacted by uncertainty over timing of contracts.
Palantir CEO Alex Karp called the AI program, which was launched in April last year, the "future" of the company, expecting growth in the United States.
Jefferies upgraded Palantir's shares to "hold" from "underperform," reversing its rating in just a month saying "we are impressed with AI Platform (AIP) ramping faster than our initial expectation."
Palantir also introduced an adjusted free cash flow forecast, targeting between $800 million and $1 billion in 2024, which Jefferies called the "highlight" of the report.
Nvidia, a poster child of the AI frenzy that closed at a record level on Monday, added another 1.5% in trading before the bell.
Despite the strong forecast, analysts expressed concerns about the Palantir stock's lofty valuation, which nearly doubled over the past 12 months.
"Despite our bullish, above-consensus growth and profitability assumptions, we are unable to rationalize Palantir's current valuation," said Morningstar analyst Malik Ahmed Khan.
Palantir's median price-to-earnings (PE) ratio is 53.19, well above the industry median at 17.60, according to LSEG data. A lower PE multiple indicates an attractive investment opportunity.
Wall Street overall remains on the sidelines with an average rating of 17 brokerages covering stock at "hold" and median price target of $18.50, predicting a 6% drop in shares in the next 12 months from its last premarket price of $19.80.
(Reporting by Medha Singh in Bengaluru; Editing by Shailesh Kuber)
