RBC Capital maintains Palantir stock rating on valuation concerns

RBC Capital reiterated an Underperform on Palantir with a $90 price target, citing an unattractive 224.79 P/E, declining quarterly contract value and net new annual contract value for a second straight quarter, and doubts about commercial momentum. The note flags downside risk into Palantir’s May 4 Q1 2026 earnings report, even as other analysts remain constructive and the company recently won a $300 million USDA contract.

Analysis

The market is still pricing PLTR like a hypergrowth monopoly, but the marginal buyer is now being asked to underwrite both slower contract momentum and a much more fragile valuation anchor. When a software name trades at a premium multiple this extreme, the stock becomes less about top-line beats and more about whether customers keep expanding usage fast enough to justify the revision cycle; if procurement teams are even mildly slowing or rebidding, the equity can re-rate sharply before fundamentals visibly break.

The second-order risk is that commercial weakness can infect the investment narrative faster than government spend data alone would suggest. If customers are evaluating migration paths, that typically shows up first as elongating sales cycles, then as smaller deal sizes, then as weaker net retention—meaning the downside can persist for multiple quarters even if headline revenue still prints above consensus. That creates a dangerous setup into earnings: a good quarter may be enough for a relief bounce, but not enough to repair the multiple unless forward commentary clearly re-accelerates pipeline conversion.

The main upside catalyst is not just another beat; it is evidence that AI platform adoption is turning into durable multi-year commitments rather than tactical pilots. If management can show stronger commercial expansion, rising contract value, and no sign of platform churn, the bear case loses its core engine. Until then, the skew favors selling rallies because the stock is vulnerable to any sign that consensus expectations are front-running a more normal software growth profile.

The contrarian read is that the market may be overestimating how much near-term contract volatility matters if PLTR is still winning strategic budgets where decision cycles are political rather than purely economic. A single large public-sector award can mask broader softness for a while, and that can support the shares for days to weeks. But over a 3-6 month horizon, the valuation is so sensitive to forward revisions that even a modest slowdown could dominate new deal wins.

Key Decisions for Investors

• Short PLTR into earnings or on post-print strength; use a 2-8 week horizon and cover if management raises FY26 guidance with evidence of accelerating commercial contract value.
• Buy PLTR put spreads 30-90 days out, targeting a move toward a 15-25% downside gap if forward commentary confirms slower customer expansion; defined risk makes sense given elevated implied volatility.
• Pair trade: long a lower-multiple AI infrastructure beneficiary vs short PLTR for 1-3 months; this isolates AI spending exposure while fading valuation compression risk in the platform name.
• If already long PLTR, trim into any earnings bounce above the pre-print level; keep a smaller core only if net retention and contract value re-accelerate materially.
• Watch for a catalyst reversal only on evidence of multi-quarter commercial re-acceleration; absent that, treat rallies as sellable rather than investable.