- Palantir’s stock experienced significant volatility, dropping from $125 to $106 due to defense budget cuts and a new trading plan by CEO Alex Karp.
- Despite strong revenue growth and impressive U.S. commercial sales, Palantir’s valuation is seen as irrationally high, prompting a downgrade to “Strong Sell”.
- Palantir’s current valuation is unsustainable, trading at over 83x TTM revenue, far exceeding industry peers and even major tech companies.
- The company’s valuation hinges on insane revenue growth and profitability expectations, effectively pricing in near-perfect execution that far exceeds its historical performance.
- We believe the recent rally is likely to be driven by a speculative frenzy and passive buying, with Palantir’s fair value estimated closer to $49.95 per share.
Investors in Palantir Technologies Inc. (NASDAQ:PLTR), a major player in big data and AI software, experienced a volatile week as shares fell sharply from a peak of $125 earlier this week to $106 at the end of the week. This came as news came out about a memo from Pete Hegseth calling for a significant 8% cut in the defense budget over the next 5 years, which could hit Palantir given their presence in the defense and intelligence community. Additionally, Palantir’s CEO Alex Karp adopted a new trading plan allowing up to $1.2BN shares to potentially be sold until Sept. 12, to which the market apparently also reacted negatively.
In our view, the developments from the DoD are not overly significant given the scope of the proposals, in addition to the fact that Palantir is continuing to shift from government to commercial with AIP as steam is building in the commercial segment in the U.S. as more wind comes from broader AI adoption. What we do see as a significant issue has to do with Palantir’s valuation, as we will explain further in this article, which, we believe, has currently entered the realm of irrational exuberance, and our reasoning for downgrading Palantir from a “Sell” to a “Strong Sell” as we believe the top is likely in.
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