Analyst resets Palantir stock price target ahead of Q2 earnings

Updated at 10:52 AM EDT

Palantir Technologies shares moved lower in Tuesday trading following a downgrade from a Wall Street analyst heading into the data-analytics group's second quarter earnings report next month.

The data-analysis software provider ( PLTR ) , co-founded by the billionaire investor Peter Thiel in 2003, has added more than $27 billion in market value this year as investors continue to bet that the group's foothold in artificial-intelligence technologies would drive faster earnings growth.

Key to that outlook has been the group's AIP Logic platform, which enables companies to build specific functions that leverage its large language models without having to use complex computer coding.

Palantir has also been able to leverage its legacy government business, which is tied in part to its work with the Central Intelligence Agency. The Denver-based group, in fact, won a $480 million contract from the U.S. Department of Defense in early May.

Mizuho analyst Matthew Broome says, however, that the market's valuation of Palantir is becoming "increasingly difficult to justify" as it prices the stock well ahead of his revenue forecasts for the coming year.

Palantir 'lack of visibility' in focus

"While Palantir has performed generally well in recent quarters, we remain concerned by the lack of visibility into its business," said Broome, who lowered his rating on the stock to 'underperform' from 'neutral' in a note published Tuesday.

"Some of the beats have been lower quality, and we have limited confidence in the company's ability to deliver consistently strong results," added Broome, who nonetheless lifted his price target on the group by $1 to $22 a share.

Related: Analyst revamps Palantir stock price target as software firm widens scope

Palantir, which reports second quarter earnings on Aug. 5, often trades with big swings tied to its near-term sales outlook.

In May the stock saw its biggest one-day decline in two years, pegged at 15%, after company officials forecast full-year revenue in the region of $2.68 to $2.69 billion, a tally that came up shy of Wall Street estimates.

For the second quarter, Palantir estimates revenue around $634 million, with Wall Street now expecting an overall tally of $652.1 million and an adjusted bottom line of 8 cents a share.

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"We are winning in the U.S. (because) we built software infrastructure that allows enterprises, both commercial and government, to move beyond chat, move beyond self-pleasuring, to actually produce things that are valuable," CEO Alex Karp told investors on May 6.

"And whether this is tasking satellites in the commercial context, or changing margins or changing American workers into Japanese engineers using our software platform and large language models, we believe we are the only company in America, the only really relevant market, that will allow you to do useful things with large language models," he added.

Palantir shares were marked 2.35% lower in early Tuesday trading to change hands at $28.00 each, a move would still leave the stock with a year-to-date gain of around 70%.

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