Palantir’s 18% decline over three weeks is a reminder that even the most highly hyped stocks can’t defy gravity. Sure, the company is posting jaw-dropping growth rates, but the market doesn’t merely reward performance, rather it punishes excessive expectations.
Those investors who purchased Palantir at its peak were investing in perfection, and the slightest worry in sentiment, from talk of interest rates to insider sales, seemed sufficient to drive shares lower. The question now isn’t whether Palantir is a healthy business (it most certainly is), but whether its stock price is more fantasy than reality.
Palantir boasts its blend of profitability, explosive expansion, and government contracts that are both stable and esteemed. Its U.S commercial revenue doubling year after year indicates that its AI-based software isn’t only for defense, rather it’s also becoming necessary for private companies, but the problem is valuation.
Being traded at 90x forward sales and a P/E of 240, the stock is being valued as if absolutely nothing can go wrong. That type of pattern is volatile, since every little bump, whether in execution, competition, or general AI excitement, would send stock tumbling once more. The fundamentals indicate Palantir is creating something large, but the market forces indicate that investors already are paying years’ worth of future success up front.
Palantir isn’t wrecked, the company is doing well, but the stock has been sailing ahead of reality. For long-term optimists, the recent pullback could be an opportunity to invest in one of the best of the AI revolution. But for those who doubt, it might be better to sit on the sidelines until the price more closely aligns with the potential.
The fundamentals of Palantir are solid, but the stock is quite expensive. For such stocks a more conventional tactic, like waiting for the next pullback or scaling in slowly, might be appropriate for investors who are seeking exposure without overpaying.
