The AI boom of the last two years is responsible for some of the biggest stock market winners we’ve seen since the turn of the decade. Only time will tell if these changes can stabilize into reliable streams of revenue — but there’s little doubt that valuations are quite high overall at the time of writing.
This can, more or less, be excused when dealing with businesses that are expanding rapidly and maintain a competitive advantage or moat, like in the case of Nvidia’s (NASDAQ: NVDA) rapid rise.
However, just four days ahead of the company’s Q3 2024 earnings report, the state of affairs is looking a bit too volatile for Palantir Technologies (NYSE: PLTR) — as CEO Alex Karp has just offloaded a hefty amount of shares amidst widespread concerns that the PLTR stock price increase we’ve seen throughout 2024 might come to a sudden close very soon.
Picks for you
At press time, PLTR shares are trading at $41.82 — having rallied by 14.70% over the course of the last 30 days to bring year-to-date (YTD) returns up to 152.24%.
Alex Karp’s sale could sour investor sentiment
Before moving on, we should note that the selling of stock by board members or other insiders is not necessarily a bearish signal — at least not always.
Plenty of these transactions are made pursuant to 10b5-1 trading plans — in essence, insiders have to commit to the sale of an agreed-upon amount of equity months in advance.
This was the case with Alex Karp’s recent transactions, which saw the sale of $177,792,241 in company stock. The CEO executed two trades — the first, on October 28, saw the sale of 3,337,048 Palantir shares at a price of $45.0168, while the second, on October 29, encompassed 612,404 shares at a price of $45.0177.
In total, the two trades netted Karp roughly $177,792,241 — but since this was all planned in advance, there’s nothing to worry about — right?
Perhaps — but the timing is suspicious. PLTR is trading at all-time highs — and scheduling the sale so close to the big data business’s next earnings call does raise a few eyebrows.
If Karp does have any concerns about Palantir stock prices dropping, this would be the perfect way to do it — ride the hype train for as long as possible, and take profits before the closely-watched catalyst that could cause a correction.
PLTR stock is a risky bet — even for bulls
The long-term growth prospects of the company are solid — the last earnings report saw signs of a much-needed diversification in terms of revenue streams — although the momentum of these changes did leave something to be desired.
In terms of public sector customers, there’s little cause for concern — the data analytics firm just recently secured a $7.15 million contract with the Australian Department of Defence, and has managed to renew various contracts across 2024 that will net Palantir millions of dollars.
But there’s a catch here — another of the worries that investors have has to do with the total addressable market (TAM) of PLTR. The services of the company cost $2.15 million annually on average, leaving a limited pool of commercial customers — a fact that could present strong headwinds going forward.
Even bullish researchers, like Wedbush’s Dan Ives, who had called it the ‘Messi of AI’ set his price target at $45 — and while that 7% upside is nothing to scoff at, it doesn’t seem quite worth the risk for a stock with such a high valuation and yearly gains.
Featured Image:
Dennis Diatel, Kaufbeuren, Germany — April 30, 2021. Digital Image. Shutterstock.
