Today, shares of many high growth names are in freefall after it was announced that President Joe Biden would be re-nominating Jerome Powell as chairman of the Federal Reserve. Palantir Technologies (NYSE:PLTR) wasn’t spared in the process. After falling by as much as 5.5% today, shares of PLTR stock have steadily recovered to only being down by 3%.
Powell’s re-nomination came over Lael Brainard, who instead was nominated as the vice chair of the Fed’s board of governors. Brainard’s nomination as chairman could have potentially influenced the Federal Reserve to issue a more dovish central bank policy. This means that under Brainard, the Federal Reserve could have possibly taken longer to raise interest rates and pull back emergency stimulus measures.
If interest rates rise, companies will be less incentivized to fund internal growth and stock buybacks. Indeed, this is because borrowed money will be charged at a higher interest rate. Additionally, a higher rate will discount future cash flows to a lesser present value. This is because interest rates are included in the denominator of the discounted cash flow (DCF) formula.
Despite these factors, Goldman Sachs still believes PLTR stock is a durable investment, even in the face of rising rates.
Why Goldman Sachs Still Thinks PLTR Stock Is a Buy
As the Federal Reserve works to decrease quantitative easing (QE) over the next few months, investors have a lot to process. Coupled with rising treasury yields, investors must decide how these factors, including an inevitable rate hike, will affect their investments.
If interest rates rise, Goldman believes Palantir will still be a great investment because it doesn’t solely trade on the value of future cash-flows. Goldman’s David Kostin explained this phenomenon in a Nov. 19 note:
“In contrast, growth stocks with elevated current profitability have comparatively shorter durations, and therefore are less exposed to the risk of rising interest rates.”
Goldman believes Palantir’s cash flow today and in the near future will be very healthy. That means that the stock’s valuation isn’t entirely dependent on cash-flow estimates in the long term. Other companies that Goldman believes won’t be significantly affected by rate hikes include PayPal (NASDAQ:PYPL), Zoom (NASDAQ:ZM) and Meta Platforms (NASDAQ:FB).
Goldman Sachs currently has a price target of $34 for Palantir, which represents a 44% upside from current prices at the time of writing. Looking forward, investors want sustained revenue growth in both the government and commercial sector of Palantir’s data analytics platform.
On the date of publication, Eddie Pan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.