"April 2nd" is approaching, and AI leader Palantir (PLTR.US) has been targeted by Morgan Stanley: Beware of the "Davis double kill"

As of the closing of the US stock market on March 31st, the stock price of the "AI bull stock" Palantir (PLTR.US), which had risen by as much as 340% in 2024, continued its soft trend since February. Investors are pricing in the potential impact of US President Trump's global tariff policy on the economy on April 2nd and the impact of the tariff policy on this "AI + big data analytics" company on April 2nd. Compared to its stunning global stock performance in 2024, Palantir's stock has only risen by 11% since 2025, but significantly outperformed the S&P 500 and Nasdaq 100 indices, mainly because some investors still have high hopes for the optimistic revenue prospects that the company could bring with its powerful data analytics ecosystem. However, the analysis team from the Wall Street financial giant Morgan Stanley pointed out that the higher tariffs planned by the Trump administration, which it is set to announce on April 2nd, could lead to an economic recession in the US. Looking at the pricing curve of Palantir's stock and its high valuation dynamics which remain at historical highs, the stock has not made adequate preparations to cope with economic downturn. Since returning to the White House in January, the Trump-led US government has imposed new tariffs on several important US trade partners, and plans to announce so-called "reciprocal tariffs" on April 2nd, as well as potential tariff details for certain specific industries. The Trump administration has named April 2nd as "Liberation Day". Amid escalating global trade tensions, bullish risk assets have recently faced multiple negative impacts: a sharp drop in confidence among US businesses and consumers, a significant increase in the inflation indicators most favored by the Federal Reserve (coinciding with the eve of "Liberation Day" with reciprocal tariffs on April 2nd), and US consumers' long-term inflation expectations being the highest since February 1993. With all these factors putting pressure on the market, the expectation of the US economy falling into "stagflation" or even deep recession has been gaining momentum since February. Under the continuous high inflation and the dual pressure brought by the threats of "reciprocal tariffs" on April 2nd, the S&P 500 and the Nasdaq Composite Index recorded their largest quarterly declines in nearly three years in the first quarter of this year, while safe-haven assets have outperformed. Gold prices rose by 19% in the first quarter, marking the strongest quarterly gain in 38 years. With the sharp turn towards aggressive policies such as imposing tariffs and expelling immigrants, which have led to a comprehensive deterioration of economic data including inflation and consumer confidence, the Trump administration has even refused to provide support to the declining US stock market. This has caused the long-standing strategy of "buying on dips" in the stock market to collapse, leading to massive losses for the billions of retail investors who bought at the lows. According to Morgan Stanley, these macro-level negative factors have played a significant role in the important 30% decline in Palantir's stock price since it reached a 52-week high in February. Additionally, Palantir is an overvalued high beta stock. Morgan Stanley advises investors to remain cautious about Palantir, warning against chasing highs and being aggressive in "buying on dips". The beta value measures a stock's volatility relative to the overall market. With Palantir's current beta value exceeding 1 and approaching 2, it indicates that its volatility is significantly higher than the S&P 500 index, meaning that if the S&P 500 index declines due to deteriorating macroeconomic expectations, Palantir's decline could be more severe. Furthermore, with an expected price-to-earnings ratio of 150x, Palantir seems overvalued compared to the "AI chip leader" NVIDIA Corporation (NVDA.US), which is also trading at a high valuation. Morgan Stanley suggests that these factors, combined, make Palantir's stock less attractive to the majority of institutional and retail investors expecting to buy on dips in times of economic recession as investors tend to avoid overvalued stocks with high beta properties in difficult economic periods. More importantly, Palantir's exposure to government business is too high, and with the Trump administration and Musk-led DOGE massively slashing fiscal spending, the core DRIVE that drives Palantir's performance growth may disappear, which would be a disastrous event for Palantir's highly valued stock. Therefore, in Morgan Stanley's view, the likelihood of Palantir facing a "Davidson double kill" is increasing referring to a continuing downward trend in stock price catalyzed by a simultaneous decline in the stock's fundamental strength and its PE valuation system. However, some investors emphasize that Palantir will maintain its strong growth momentum by penetrating more enterprise customers with its powerful "AI + data analytics" software ecosystem. This is also the core logic behind the bullish outlook for the stock, and the showdown between the bulls and bears may intensify in the future. Regarding whether April 2nd could become a positive catalyst for the US stock market, Morgan Stanley points out that April 2nd may not bring a clear answer for the market, and investors should not see it as a "shoe drop" moment. Faced with multiple variables, the Morgan Stanley analysis team believes that choosing a single path to guide investment strategy is meaningless, and instead recommends waiting for April 2nd to answer two key questions: whether the announcement can clarify the specific path of the tariff policy, turning it from unknown to known; and whether the scale of tariff increases is large enough to further worsen the outlook for the US economy. What is Palantir? What are its heavyweight products in the field of artificial intelligence? Palantir was co-founded by billionaire Peter Thiel in 2003 and has long emphasized its strong relationship with the US government and its allies. The company's software products have been used by almost all important branches of the US military for a long time, and it participates in key military and intelligence operations.The core driving force behind the development of AI projects. This Denver-based American big data software giant has evolved from providing exclusive services to the US intelligence community to establishing long-term partnerships with various government agencies of the US and its allies, as well as with numerous companies such as CBS, General Mills, Inc., Aramark Services, Panasonic North America, and Cummins Inc., making it one of the most influential technology companies in the US.Palantir first gained global fame for providing crucial data and situational analysis support to the US government in the pursuit and killing of Osama bin Laden. Although Palantir never officially acknowledged this, the media and military enthusiasts widely believe that Palantir played an important role in this process, leading to its rise to fame. The American data software giant Palantir, focusing on "AI + data analysis", saw its stock price surge over 340% in 2024. The software giant's stock price benefited from investors' overwhelming enthusiasm for AI, as more and more commercial and government clients began using Palantir's "AI + data analysis" software ecosystem. Palantir's generative AI platform "AIP" is fully integrated with its existing data analysis software ecosystem, allowing customers to access Palantir's core modules and functions through simple Q&A, enabling organizations to effectively apply generative artificial intelligence to data analysis, improving insights and operational efficiency. With its AI-driven data analysis platform, Palantir not only dominates the national security sector but also shows tremendous growth potential in the US commercial market. Palantir's AI software ecosystem covers almost all military departments in the US and has expanded to US allies. With the explosive growth in demand for commercial AI software, Palantir is leading an "AI revolution" dominated by AI software rather than high-performance AI chips. Financial data shows that the company's fourth-quarter sales jumped 36% to $8.275 billion, with US commercial sales growing significantly by 64% to $2.14 billion. In terms of business performance outlook, Palantir expects US commercial sales to grow by approximately 54% to $10.8 billion in 2025. The fatal risk affecting Palantir's stock price trend: excessive exposure to federal government business Morgan Stanley pointed out in its research report that substantial cuts in US federal spending could continue to depress Palantir's valuation and stock price. Morgan Stanley is turning bearish on Palantir not only because of macro factors impacting the stock valuation but also due to the "extremely high fundamental outlook risk" of profit expectations being downgraded. Morgan Stanley stated that what may hinder Palantir's stock from recovering in the coming months is not only the downward pressure on valuation brought by macro factors such as tariffs and broader global trade tensions but also the Trump administration's plan to significantly cut federal spending in the coming years, which could severely impact Palantir's fundamentals. Trump has ordered the Pentagon to identify spending cuts of up to $500 billion, which could significantly damage Palantir's profit expectations, as currently over half of the company's revenue comes from federal government contracts. Statistics show that Palantir is a major contractor for large government software engineering projects, which is no secret. Federal spending accounts for a large portion - approximately $1.2 billion of Palantir's total US revenue in the 2024 fiscal year, meaning it represents about $12 billion of its total revenue of $19 billion. Wall Street analysts generally advise caution with Palantir's stock price, with the consensus rating currently just being "hold" and the average target price at $84.22, which is in line with the current trading price of Palantir stock. This suggests that, according to Wall Street analysts, the stock does not have any upward potential in the next 12 months.