Stocks to sell

Palantir (PLTR) Stock Has Been Ripping, But Here’s Why That Could Change

In my previous Palantir Technologies (NYSE:PLTR) article, I emphasized how bearish I am for the stock. This is mainly because I believe there are much better AI companies to consider and invest in. In addition, PLTR has received a lot of issues and downsides in the past few weeks, which adds up more to why you should avoid it now.

In 2023, Palantir Technologies faced challenges as a bearish William Blair analyst raised concerns about the Army contract renewal worth $458 million, set to expire. DiPalma speculated a substantial reduction in the renewal contract based on a recent U.S. Army presentation.

Despite Palantir Technologies demonstrating strong revenue growth, the stock appears overvalued following a year-long surge. Following a cautionary note from a Wall Street expert, a bearish outlook on PLTR stock is advisable, prompting potential profit-taking by investors.

Why Palantir Fell

PLTR stock shares dropped 8.2% amid a broader market pullback, influenced by rising yields and a bond sell-off after the S&P 500 hit a new yearly high in late November 2023. Palantir’s stock, known for its high volatility with 47 significant moves in the past year, made a notable shift today. The market views the news as significant but does not alter its fundamental business perception.

The last notable shift occurred 14 days ago, with a 5.1% gain following the departure of OpenAI’s CEO, Sam Altman. The Board cited communication issues, leading to a lack of confidence in his leadership, prompting President Greg Brockman to resign.

Despite Palantir’s 189% increase this year, trading at $18.47 per share, it remains 13.4% below its 52-week high of $21.34 in November 2023. Investors who purchased $1,000 worth of Palantir shares at the IPO in September 2020 would now have their investment valued at $1,944.

Growth is Still Slow

Founded 20 years ago by Peter Thiel, Nathan Gettings, Joe Lonsdale, Stephen Cohen, and current CEO Alex Karp, Palantir, named after Lord of the Rings’ crystal balls, addressed intelligence failures post 9/11. The CIA’s In-Q-Tel was an early investor.

Palantir’s revenue soared by 47% in 2020 and 41% in 2021, with an initial forecast of at least 30% annual growth through 2025. However, it faced challenges, and 2022 growth slowed to 24%. In 2023, management anticipates a further dip with 16% growth. Uneven government contract timing impacted Gotham’s growth, and macroeconomic challenges led to Foundry’s slowdown.

The Next Big Thing in AI?

Bullish investors anticipate Palantir’s growth resurgence driven by geopolitical tensions and increased demand for efficient data tools, especially in the energy, aerospace, and industrial sectors. The launch of a new AI platform positions Palantir for long-term growth in the expanding global AI market.

Palantir, currently at a $2.2 billion annual revenue, could reach $10.5 billion by 2032, potentially becoming a megacap at over $200 billion. Challenges include competition and the need for strategic acquisitions for substantial growth.

Drop Hold Onto This Hot Potato

Palantir’s potential as a future megacap tech giant hinges on sustained revenue growth, GAAP profits, and justifying its premium valuation. Failure in these aspects may impact its stock performance. Thus, this is a stock I think is simply too expensive given its risk profile, even with its AI catalysts.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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