Palantir Technologies stock (NASDAQ: PLTR) stays up by over 4x because the starting of the yr, buying and selling at about $74 per share. Nevertheless, we imagine the inventory is a high-risk commerce at this juncture for a few causes, together with its excessive valuation (over 150x consensus FY’25 earnings), its heavy dependence on authorities gross sales, in addition to appreciable insider promoting within the inventory. Under, we check out what’s been driving Palantir’s inventory larger of late, and why it is likely to be prudent to be cautious with the inventory at present ranges.
What’s Been Driving The Rally?
The primary leg of the rally was fueled by the market frenzy surrounding synthetic intelligence shares in addition to stronger-than-expected earnings in current quarters. Nevertheless, the rally gained momentum after the U.S. elections. Actually, the inventory has surged near 80% since election day. Traders are optimistic {that a} Donald Trump-led Republican administration will improve federal spending on nationwide safety and immigration, driving demand for Palantir’s software program instruments. Palantir’s co-founder Peter Thiel, was an early Trump ally and he’s additionally seen as holding lots of affect inside the incoming administration. Moreover, Palantir inventory was lately added to the Nasdaq-100 following the index’s annual reconstitution. The corporate moved its inventory itemizing from the NYSE to the Nasdaq in late November, and its inclusion within the Nasdaq-100 has possible boosted demand for the inventory from exchange-traded funds. Individually, if you’d like upside with a smoother journey than a person inventory, take into account the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
What Are The Dangers?
Focus of presidency gross sales
There are considerations as effectively. The focus on authorities gross sales may show a problem as these contracts are sometimes unsure and lumpy, making them much less predictable. Palantir, too, has indicated that the business market represents a much bigger alternative. Palantir’s Foundry platform targeted on business prospects is utilized in industries together with manufacturing, retail, and healthcare. Nevertheless, business efficiency hasn’t been as much as scratch. Industrial-related gross sales rose 27% to $317 million in Q3 lacking consensus estimates, in comparison with the federal government facet of the enterprise which beat estimates. The corporate’s ticket sizes are usually giant and implementation can also be complicated and costly, that means that the product could not scale effectively with small and medium-size corporations. Palantir faces competitors from giant and diversified tech corporations akin to Microsoft, which may cross-sell options to their present prospects, in addition to from extra area of interest information analytics corporations.
The rise in PLTR inventory over the past 4-year interval has been removed from constant, with annual returns being significantly extra unstable than the S&P 500. Returns for the inventory had been -23% in 2021, -65% in 2022, and 167% in 2023. In distinction, the Trefis High Quality (HQ) Portfolio, with a group of 30 shares, is significantly much less unstable. And it has outperformed the S&P 500 annually over the identical interval. Why is that? As a gaggle, HQ Portfolio shares offered higher returns with much less danger versus the benchmark index; much less of a roller-coaster journey as evident in HQ Portfolio efficiency metrics. So what’s the outlook like for the inventory?
Palantir’s excessive valuation
Palantir’s valuation put up the rally isn’t justified, in our view. The inventory trades at about 48x ahead income and at greater than 150x consensus FY’25 earnings. Nevertheless, the corporate’s progress charges are pegged at nearly 25% for each 2024 and 2025 per consensus estimates. As compared, cloud information warehousing and analytics participant Snowflake trades at about 12x revenues with its progress charges additionally being in an identical vary. Actually, AI bellwether Nvidia (NASDAQ:NVDA) inventory trades at nearly 30x estimated earnings for the subsequent fiscal, although revenues are on monitor to greater than double this yr, with the consensus projecting over 50% progress for subsequent yr. (Must you Purchase, Promote, Or Maintain Nvidia Inventory?)
Appreciable insider promoting
Insider promoting in Palantir inventory has additionally been on the rise. Alex Karp, the corporate’s CEO, has bought near 40 million shares over the previous couple of months. Stephen Cohen, a founder and president at Palantir has bought over $90 million in inventory. This could possibly be an indication that insiders additionally imagine the inventory is totally priced and this might additionally put stress on the inventory value if extra insiders proceed promoting. The broader financial surroundings provides one other layer of uncertainty. Whereas markets have rallied following the election, the danger of inflation persists amid threats of tariffs and deportation insurance policies. These elements may affect the rate of interest surroundings and, in flip, the valuation of high-growth shares like Palantir. (S&P To Crash Extra Than 40%?)
| Returns | Dec 2024 MTD [1] |
2024 YTD [1] |
2017-24 Complete [2] |
| PLTR Return | 11% | 335% | 217% |
| S&P 500 Return | -3% | 23% | 162% |
| Trefis Strengthened Worth Portfolio | -3% | 21% | 800% |
[1] Returns as of 12/19/2024
[2] Cumulative complete returns because the finish of 2016
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The views and opinions expressed herein are the views and opinions of the writer and don’t essentially replicate these of Nasdaq, Inc.
