The artificial intelligence (AI) story is entering a new chapter, and it’s time for the ‘Magnificent Seven’ stocks to make the move. Throughout 2024, investors have been exposed to a host of new, emerging players working alongside the big tech companies and proving that they are here to compete in the AI ​​space.
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In my eyes, Palantir Technologies(NYSE:PLTR) has become the most interesting case study among smaller technology companies. So far in 2024, Palantir shares are up 283% at the time of writing, and the company is the best performing stock in the world. S&P500 this year.
And yet, as Palantir’s stock continues to reach new highs, one notable investor has dumped the stock en masse. I’m going to outline the steps Cathie Wood of Ark Invest makes and explain why it actually makes a lot of sense to sell Palantir shares now.
One of the more interesting things about Ark Invest is that the company publishes a breakdown of the stocks it buys and sells each trading day.
Data source: Ark Invest, Cathiesark.com. Table by author.
According to that data, between September 11 and November 15, Wood and her team reduced their holdings of Palantir across Ark’s various funds by approximately 1.9 million shares.
Palantir shares have soared in 2024. But between September 11 and November 15 (the period of Ark’s sale), Palantir shares rose 89%.
Data per YCharts.
In the chart above, the date of Palantir’s third-quarter earnings results is marked with a purple circle with the letter “E” in the center. As you can see, Palantir shares rose significantly after the big Q3 report.
While such gains have been big for Palantir shareholders, the magnitude of this rebound should come with a hard look at the fundamentals. As illustrated in the chart below, Palantir’s price-to-sales (P/S) multiple of 60 is the highest among leading software-as-a-service (SaaS) companies – and it’s not particularly close either.
Data per YCharts.
I can’t emphasize this point enough: Palantir trades at more than 60 times revenue, notincome. While Palantir does indeed generate positive net income and free cash flow, both metrics are still relatively small at this point.
When a stock experiences a pronounced rally in a short period of time, it is appropriate for fund managers to rebalance their portfolio. In this case, Wood’s sale of Palantir coincides with the company’s addition to the S&P 500 and an impressive earnings report. Both events became positive catalysts for Palantir stock in the short term.
It’s possible that Palantir’s weighting in the various Ark funds became too high, so Wood and his team decided to reduce the position and take some profits off the table. While Palantir has shown the ability to accelerate both revenue and earnings, the valuation expansion in the chart above suggests the stock may be overbought at the moment.
As a Palantir shareholder, I strongly believe in the company’s future thanks to lucrative partnerships with major tech companies such as Amazon, MicrosoftAnd Oracle. Furthermore, Palantir is quietly becoming a major force in the US military’s defense technology efforts – an opportunity that Mordor Intelligence estimates will be worth more than $60 billion by 2029.
That said, Palantir stock is undoubtedly pricey right now. If you have been holding the stock for a long time, consider trimming your position at this point. While there is still potential upside for Palantir, lowering your position at these valuation levels could also make sense.
Consider the following before purchasing shares in Palantir Technologies:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions at Amazon, Microsoft and Palantir Technologies. The Motley Fool holds positions in and recommends Amazon, CrowdStrike, Datadog, Microsoft, Monday.com, MongoDB, Oracle, Palantir Technologies, ServiceNow, and Snowflake. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Cathie Wood is selling Palantir shares. Here’s why that makes sense. was originally published by The Motley Fool
