Palantir shares have fallen 25% since hitting a file excessive in early November, due partly to hedge fund supervisor Michael Burry disclosing a giant wager in opposition to the inventory.
CEO Alex Karp just lately accused quick sellers of market manipulation, arguing it is not sensible to wager in opposition to what he sees as America’s most essential software program firm.
Karp’s feedback overlook Palantir’s absurd valuation; it might nonetheless have the best price-to-sales a number of within the S&P 500 even when its share value dropped one other 66%.
Palantir Technologies(NASDAQ: PLTR) is a cornerstone of the unreal intelligence (AI) commerce, notably amongst retail traders. The firm has constantly crushed Wall Street’s expectations, and shares have superior 1,800% since Palantir launched its AI platform in April 2023.
Yet, the inventory just lately hit turbulence regardless of the corporate’s sturdy market presence and stable third-quarter monetary outcomes. In November, hedge fund supervisor Michael Burry — well-known for predicting the collapse of the housing market forward of the monetary disaster, a narrative chronicled within the e-book The Big Short: Inside the Doomsday Machine — disclosed a considerable quick place in Palantir.
Is it time to purchase?
Image supply: Getty Images.
Palantir CEO Alex Karp joined CNBC’s Squawk Box earlier this month to focus on Michael Burry’s quick place. A Form 13F revealed a day earlier confirmed the hedge fund supervisor had 66% of his $1.4 billion portfolio in put options in opposition to Palantir. Karp referred to as the choice “bat s*** crazy” and puzzled aloud why anybody would assault “what is clearly the most important software company in America.”
Karp additionally reminded listeners that Palantir has constantly burned quick sellers prior to now and provided an outlandish rationalization as to why Burry and different traders are betting massive in opposition to the inventory. “Honestly, I think what is going on here is market manipulation,” he instructed CNBC. “I’m sorry short sellers can’t tell the difference between products that work and products that don’t.”
That is a weird factor to say. Karp is clearly an clever particular person, but he conflates questions on whether or not Palantir builds high quality software program and whether or not the inventory is overvalued. Those are very totally different questions. Not even the most effective software program inventory on the earth is price shopping for at any value.
Palantir spent its early days creating analytics instruments for the U.S. intelligence neighborhood, the place its Gotham platform performed an essential position in counterterrorism operations. The firm has since tailored its software program to the non-public sector, the place its Foundry platform empowers decision-making throughout industries like finance, healthcare, manufacturing, and retail.
Palantir launched a man-made intelligence platform referred to as AIP in April 2023. That product capabilities as a big language mannequin orchestration software that lets builders construct generative AI options into enterprise processes and purposes. Forrester Research analysts have since acknowledged Palantir as a expertise chief in machine studying platforms and AI decisioning software program.
In flip, the corporate has reported more and more spectacular monetary outcomes, such that gross sales progress has now accelerated in 9 consecutive quarters. Management says investments in distinctive software program structure and infrastructure have given Palantir an edge in enterprise AI. Chief Revenue Officer Ryan Taylor explains, “The real opportunity and our unique capability lies in moving from prototype to production.”
In quick, Palantir has grow to be a serious participant in an trade that may doubtless develop in a short time within the years forward. But that doesn’t imply traders ought to pay any value for the inventory. Palantir traded at 125 occasions gross sales when Karp made feedback about market manipulation. Few different software program shares have ever attained such a a number of and none have sustained it indefinitely.
In reality, regardless of falling 25%, Palantir shares commerce at 102 occasions gross sales right now, the costliest valuation within the S&P 500 a number of occasions over. The subsequent closest firm is AppLovin at 32 occasions gross sales. That means Palantir shares may decline one other 66% and it might nonetheless be the costliest inventory within the index by that valuation metric. That is absurd.
Here’s the underside line: Palantir is a wonderful firm. It has achieved an admirable job of capitalizing on AI demand, and I anticipate sturdy monetary leads to the approaching years. But the risk-reward profile is closely skewed towards danger due to the valuation. So, regardless of the 25% decline, traders ought to keep away from the inventory or at the very least hold any positions very small. I say that as a shareholder myself.
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Trevor Jennewine has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
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