I know everybody likes Palantir. It seems like everybody is bullish on it. I routinely see videos on YouTube with people putting out stuff like “PLTR: $100 a share?!” People are insanely bullish on PLTR, and among the “Palantards,” it’s basically assumed that Palantir is set to be the next FAANG stock. As in it’s a guarantee, a certainty.
Despite the insanely bullish sentiment on PLTR on the internet, the stock is down 48% from its 52wk high of $45 a share on January 27. Much of that sell-off was attributed to fears over the lockup expiration, as company insiders were finally allowed to sell their shares on February 19. There was some significant insider selling but in my opinion, it was nothing really beyond what was expected. Founders of the company have been waiting nearly 18 years for this moment and it’s tough to blame them for cashing in after nearly two decades.
The lockup sell-off was compounded by the broader tech sell-off, which slammed PLTR down to the low 20s.
But Cathie Wood has been buying PLTR like the whole time. She’s clearly very bullish on the stock and ARK now owns over 15 million shares altogether.
- Yes, it’s considered a “meme stock” because it’s popular on Wall Street Bets. But PLTR was the darling of WSB way before the GME craze. It’s not fair to group PLTR in with GameStop, AMC and the meme stocks. Palantir is a growth play. It has virtually nothing in common with the meme stocks. Palantir is legit.
- Nobody does what Palantir does. People compare them to companies like Salesforce and Snowflake, but those companies were not literally founded by the US government. Palantir’s software is completely unique, and they have an 18-year head start on any potential competition.
- It was basically founded by the government. In-Q-Tel, the CIA’s venture capital arm, funded the startup of Palantir with seed money. For most of Palantir’s history, it was a tool for the government in the war on terrorism and crime more generally. Today Gotham is used by police forces, the Army and probably the entire intelligence community.
- But now that Palantir has matured and refined its product, they are now unveiling it to the private sector. This is stage 2 of the company’s lifespan. Interestingly the company turns 18 this year in 2021–it’s now a legal adult and ready to realize its full potential.
- It began as a government company, and now the private sector will be able to get its hands on the immensely powerful software that the government has been using for nearly two decades now.
- This is just the beginning for Palantir. At first the government was its only customer, now they are free to sell Palantir to the private sector. And there might not be a sector in the entire economy that wouldn’t benefit from using Palantir software.
- Palantir’s customers are already diversified among the following sectors: computer software, higher education, info tech, government, financial services, banking, non-profits, hospitals & healthcare, and venture capital. They’ve also inked contracts with legal services companies, insurance companies–the point here is their software can be applied to virtually any industry and any business.
- The company is projecting 30% revenue growth by 2025 with revenues eventually reaching $4 billion by that point. I think they’re being conservative. They’re under-promising and they will over-deliver. It’s a classic strategy: set expectations low so it’s easy to exceed them. It’s stupid for a company to be too bullish about its growth prospects because if anything goes wrong, it could miss those projections and disappoint everyone and get a bad reputation.
- When you view Palantir from the perspective that just about about every company in the Western World could theoretically become a Palantir customer, you start to understand the enormous potential for this company. You start to understand why people are insanely bullish on PLTR.
My position in PLTR right now is 200 shares at an average cost of $26.06. I have been buying on the recent dip.
However, as bullish as I may be on PLTR, I realize that it’s a long term play. It is very richly priced even after the 48% drop in the share price. I’m going to lift this table from the YouTuber Kaswrp (a great market analyst to subscribe to btw) to illustrate:
32x sales and 150x forward earnings is extremely pricey, even for a growth play.
I am confident the company will live up to the lofty expectations, but it will take time. This is not going to be a Tesla situation where you see a 900% bull run in a year. With Palantir, investors need to have a 3-5 year mindset at minimum. This is a company you invest in, not trade.
I wrote above that Palantir’s pre-lockup sell-off happened to coincide with a broader tech market sell-off, which slammed the price even lower. And while this is a problem you run in to from time to time, it is my biggest concern going forward.
I firmly believe that decades down the road, Palantir will be one of those companies that your children and grandchildren are glad you invested in. It’s like investing in Apple in 2003, or Amazon in 1998, or Microsoft in the early 1990s. I really believe that.
However, specifically with the Amazon example, early investors had to go through many years of pain and losses before their long-term bull theses were validated. And it wasn’t even Amazon’s fault; it was simply a matter of bad timing in terms of the broader market cycle. Amazon went public in May 1997. Over the next two years it went up 7,500%. But then the Dot Com bubble burst, and Amazon stock dropped by 95%:
People who bought Amazon in 1999 would not see profits in the stock until August 2010. It’s unlikely most AMZN bagholders held on to their shares for that long, most probably sold at a steep loss long before 2010.
But they were not wrong about Amazon, though. Over the long term, people who bought Amazon in the late 1990s were proven resoundingly correct. Those who realized the massive long-term potential of e-commerce back in the late 1990s were 100% right.
They just bought at the wrong time.
You could be 100% spot-on about a company’s future growth prospects, but if you invest right before a major market downturn, you’re going to lose a lot of money. So you have to take the broader market into account as well.
My main concern with Palantir is not anything that has to do with the company. It’s that the market has had a massive run up not only over the past year but over the past 12 years, and we are sitting right around all-time highs.
I think investors’ bullish optimism on the whole tech sector is basically maxed-out–or at least it was a couple of weeks ago before this recent correction in the Nasdaq.
And, again, investors are right to be bullish on tech: it’s where the greatest innovations and the most disruptive technology comes from. Tech deserves loftier valuations than other sectors because tech is the sector that changes the world. You are far more likely to find the next trillion dollar company in tech than any other sector.
But tech might be in some trouble here. The Nasdaq has been on an incredible bull run since 2009. MACD is basically vertical, RSI is overbought, and we’ve been making new ATHs for the better part of the last 4 years:
The red shows when the Nasdaq is trading under its all-time highs, the green is when it’s making new all-time highs. The point is, the Nasdaq is due for a very sizable drop-off.
If you buy Palantir now, you’re not wrong about the company’s potential. Over the long term, Palantir bulls will be proven correct on the stock.
But over the medium term, I think the tech sector could be in for some more pain, potentially a lot more pain.
I love PLTR long-term. But I’m worried about the overall market. I think we will see a rebound in tech this coming week. Palantir especially is due for a nice bounce higher after the sell-off it has had over the past month or so. We’re on 8 red candles in a row on the daily chart, and 14 of the past 17 trading days have been red candles:
I am planning on selling Palantir into strength, and then buying back in after the markets correct even further, which could see PLTR back in the teens or potentially even lower.