Morgan Stanley downgrades this big AI winner, says stock can fall more than 40%

Published Thu, Aug 31 20236:04 AM EDTUpdated Thu, Aug 31 202312:21 PM EDT

Difficulties monetizing around artificial intelligence could spell bad news for Palantir Technologies after its massive rally, Morgan Stanley warned. Analyst Keith Weiss downgraded the data analytics stock to underweight from equal weight while adding $1 to his price target to $9. Still, Weiss' target implies shares could tumble 44.9% in the next year from Wednesday's close. The stock slid 4.6% before the bell. Shares have surged 154.4% this year as investors bought into names with AI exposure. But keeping those gains will be tough as it becomes time to deliver in the space, Weiss said. "Going forward, we believe the onus for stock outperformance shifts towards investors now looking for tangible revenue contribution from these Generative AI initiatives in the months ahead," he said in a note to clients Thursday. That's "an expectation which may be disappointed given Palantir's lack of a monetization strategy for AIP," or AI platform, "and the early stage of development of enterprise Generative AI solutions." PLTR YTD mountain Palantir, year to date Weiss said the company's valuation reflects the promise of AI, with the multiple expanded by more than 180% and shares re-rated with the pivot into AI. But he warned there could be delays in revenue amid challenges monetizing. Palantir's government business may be unable to make up a revenue deceleration. The government business, which was once considered an a-cyclical area that could defy broader challenges, is no longer seen as a clear leader of Palantir's "growth inflection," Weiss said. There hasn't been growth in the commercial segment. Still, he noted organic revenue is expected to grow in the second half of the year. Palantir's challenges could lead to "sell the news" events for the nearly three-year-old stock , Weiss said. They could overshadow near-term positives such as GAAP profitability, eligibility into the S & P 500 and any large contracts won with the U.K. government. — CNBC's Michael Bloom contributed to this report.