Palantir Technologies (PLTR) shares jump in extended-hours trading after the company reported better-than-expected quarterly results. Morningstar equity analyst Malik Ahmed Khan joins Market Domination Overtime Hosts Julie Hyman and Josh Lipton to discuss why he’s wary of Palantir stock.

“It was a great quarter by Palantir … [with] the guidance for Q4 was roughly in line with where we had previously modeled because we were expecting the company to finish out 2024 with strength,” the analyst tells Yahoo Finance.

He adds, “US commercial and US government [revenue] continues to drive the business. Our view is that US companies and the government tend to be early adopters of new technologies and that adoption should proliferate across Europe as these solutions show their value in enterprises and in government functions.”

Despite highlighting Palantir’s strong quarter, Ahmed Khan holds the equivalent of a Sell rating on the stock. He says, “I'm by no means a bearish analyst on the name. I really like the name,” but the analyst says he’s trying to “delineate” between the fundamental business quality and the valuation.

Ahmed Khan explains, “What kind of growth rate is expected over the next five to 10 years? What kind of margin expansion is expected over the next five [to] 10 years that's baked into this current valuation? That, for us, seems to be a bit of a stretch. At the same time, though, alongside our fair value estimate, we also have a bull case for Palantir, which turbocharges some of those growth estimates, and we still end up below Palantir's current price.”

The analyst underlines Palantir’s competitive position in the AI era. “A lot of AI with a lot of other software companies is being more about jumping on the bandwagon. Palantir has been an AI company from its very beginning.”

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This post was written by Naomi Buchanan.