Palantir’s AI Momentum Faces Valuation Scrutiny, Says Citi

Citi $C analyst Tyler Radke reiterated a neutral stance on Palantir Technologies $PLTR, maintaining a price target of $115. Despite investor enthusiasm around the company's artificial intelligence initiatives, Radke argued that Palantir’s valuation appears stretched unless it secures more sizable, recurring contracts in the near term. His assessment follows a recent meeting with the company’s leadership.

AI Platform Shows Technical Progress

Citi acknowledged Palantir's advancements in its AI platform, which integrates legacy data systems with generative AI capabilities. The architecture was praised for enabling real-time decision-making across fragmented enterprise infrastructure. However, Radke underscored a disconnect between innovation and monetization, citing inconsistent client adoption and reliance on symbolic commercial wins rather than broad-based enterprise scale.

Underlying Structural Challenges

Palantir continues to position itself as a dual-use software vendor serving both government and commercial sectors. Yet several issues temper the AI-driven narrative:

1. Contract wins remain lumpy, lacking clear long-term visibility;

2. Federal deal flow has shown signs of deceleration amid U.S. budget tightening;

3. Dependency on flagship deals creates volatility in revenue projections;

4. Execution risk persists as large-scale AI deployments remain complex and expensive;

5. Commercial uptake is growing but not yet material enough to support the valuation.

Government Business Under Pressure

Palantir's status as a major U.S. government contractor is increasingly exposed to macro and political variables. Citi flagged emerging headwinds tied to shifts in federal procurement linked to the evolving leadership landscape, particularly in light of the 2024 U.S. elections and related spending priorities. Additionally, ongoing fiscal constraints pose a risk to deal continuity and size.

Recent contracts, including one with Citi’s internal finance division, were acknowledged as encouraging steps. However, the bank emphasized they fall short of the scale required to support the company’s current market capitalization.

Valuation Outpaces Fundamentals

PLTR stock has rallied on the back of AI-related optimism, outperforming the broader tech sector and speculative software peers. Yet, Radke cautioned that investor expectations are running ahead of tangible business performance. Until Palantir translates technological momentum into material revenue growth, Citi expects limited multiple expansion from current levels.