Palantir Technologies (NYSE:PLTR) is one of the top stocks of the artificial intelligence (AI) era. Shares of the cloud software company best known for its data analytics and AI platforms are up 275% year to date, the best-performing stock on the market. S&P500 this year after that Vistraan unregulated utility that has seen its shares soar as investors anticipate an AI-driven spike in energy demand.
The growth in Palantir stock came after the company reported accelerating revenue growth and expanding margins every quarter this year. That growth can be attributed to the AI ​​platform catching on with commercial customers and the continued expansion of its government contracts, where Palantir first got its start.
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Not every investor is convinced of the continued growth, partly because the stock’s surge this year has given the stock a sky-high valuation. Palantir now trades at a price-to-sales ratio (P/S) of 58.5, which is exponentially higher than the 2.9 P/S ratio of the average stock in the sector. S&P500. Palantir is profitable under generally accepted accounting principles (GAAP) and now trades at a price-to-earnings ratio of 183, based on adjusted earnings. The average price/earnings ratio of the S&P 500 is 28.
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One of the top investors who has apparently become skeptical of Palantir is billionaire Israel Englander and his Millennium Management hedge fund. Englander was a longtime investor in Palantir, purchasing the shares in its initial public offering (IPO) in September 2020. He dumped nearly all of his stake in Palantir in the third quarter of 2024 as the shares continued to reach new highs (they have since risen ). whatsoever). Millennium Management sold 4,492,425 shares of Palantir during the quarter, leaving just 480,883 shares. These would be worth around $30 million as of November 25.
Englander is known for his long-short investing strategy, which combines bets on some stocks going up with bets that some stocks will fall. While he’s not shorting Palantir, the big selling seems to indicate he thinks it’s now overvalued.
He is also known for his lower-risk investment strategies such as merger arbitrage. This means buying shares in a company that has been agreed to be acquired, but the shares are not sold at all for the acquisition price. Recently, Warren Buffett made a big profit on Activision Blizzard shares with this strategy Microsoft‘s acquisition efforts were delayed in court.
Englander was an early bull in Palantir and invested at the time of the IPO, indicating he knows the company well. However, there is also good reason that he is wary of its valuation.
Palantir shares have soared since the end of the third quarter and are up 74% since then, thanks in part to a strong third-quarter earnings report and the company’s decision to transition into the third quarter. Nasdaq fair. The company expects to be included in the Nasdaq-100 index, which will activate ETFs that track the stock Invesco QQQ Trust to buy shares.
Selling Palantir in the third quarter makes it seem like Englander was premature in his decision, but that doesn’t mean he’s wrong.
The most impressive thing about Palantir’s recent bull run is that momentum in the company continues to increase. Revenue growth has accelerated for at least five quarters and operating margin has also increased, as the chart below shows.
PLTR data by YCharts.
As you can see, the boom in Palantir stock is directly correlated to the improving fundamentals for the company, which is a positive sign. The company has seen impressive growth in the U.S. commercial segment, which posted 54% year-over-year revenue growth to $179 million in the third quarter.
While that momentum is impressive, it appears Palantir is now priced to improve those results forever. Margins could continue to grow as the company scales, but revenue growth is likely to stagnate in the coming quarters as comparisons become more difficult.
Palantir’s business is clearly expanding its efforts and building momentum, but at this point the stock’s valuation should put a damper on its upside potential. Moreover, the stock could easily plummet if quarterly results disappoint.
Based on Palantir’s surge in the fourth quarter, Englander was premature to sell the stock. However, it makes sense to take some profits in the company at this point.
Consider the following before purchasing shares in Palantir Technologies:
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Microsoft and Palantir Technologies. The Motley Fool recommends Nasdaq and 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.
This billionaire investor has owned Palantir since its IPO. He just dumped almost his entire stake. was originally published by The Motley Fool
