What happened
Week to date, shares of Palantir Technologies (PLTR 0.51%) are down 15% through Thursday's market close, according to data provided by S&P Global Market Intelligence.
The stock has more than doubled year to date, but it tumbled following a disappointing second-quarter earnings report earlier this week that didn't meet revenue growth expectations.
So what
After falling to new lows last year, the stock took off following a better-than-expected first-quarter earnings report in May. But the stock might have gotten ahead of itself over the last few months. The provider of artificial intelligence (AI) software reported that revenue grew 13% year over year. Growth came in below estimates, despite strong customer demand for the company's AI platform.
Palantir reported it has already gained users from over 100 organizations, including some of the largest companies across healthcare, finance, automotive, and energy. But investors were concerned about weak growth from commercial and government markets. Commercial revenue grew just 10% year over year, while government revenue reported a 15% increase. Lower-than-expected growth adds uncertainty about the company's long-term growth trajectory.
Now what
Wall Street has been in a frenzy over AI stocks this year, but Palantir's relatively low growth shows how important it is for investors to be cautious with some of these stocks.
Palantir may get the ball rolling at some point, but it will need to grow much faster to justify its high price-to-sales ratio of 16 right now. Its second-quarter revenue growth was only marginally better than the corporate average.
On a positive note, management mentioned on the earnings call that it has significant deals in the pipeline and has opportunities to grow existing contracts with the government. Assuming Palantir can convert those deals, growth could accelerate again.
