Palantir Technologies, Inc. (PLTR  ), which is touted as an "AI stalwart" by some on the sell side, snagged a downgrade on Thursday.

The Palantir Analyst: Morgan Stanley analyst Keith Weiss downgraded Palantir from Equal-Weight to Underweight, while upping the price target from $8 to $9.

The Palantir Thesis: "Near-term optimism in AI product cycle and valuation premium create an unfavorable risk-reward in shares," Weiss said in a note on Thursday.

The analyst noted that the Palantir's valuation multiple expanded by more than 180% over the past eight months, as the company made a timely pivot in its product strategy to emphasize its Artificial Intelligence Platform, or AIP.

"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 added.

The expectation, the analyst said, may prove disappointing due to Palantir's "lack of monetization strategy for AIP, and the early stage of development of enterprise Generative AI solutions."

The "AI euphoria" is already reflected in valuation, but will likely take time to materialize, the analyst said.

Weiss attributed this negative opinion to three factors:

  • Expected delays in AIP revenue contribution
  • Risk of government revenue's inability to offset top-line deceleration
  • Difficult setup in the second-half as the current revenue guidance factors in an acceleration in organic revenue growth. This, according to the analyst, sets a high bar for the positive estimate revision needed to justify the valuation.
The positive catalysts the company has been touting, such as GAAP profitability, S&P500 eligibility, and large UK government contracts, are potential "sell the news" events as investor-focus shifts back to the fundamentals, the analyst said.

Palantir Price Action: Palantir shares were down 7.47% to $15.14 at the time of publication Thursday, according to Benzinga Pro data.