Why You Should Avoid Investing in Palantir

1. Palantir’s stock is up over 100% due to strong growth and S&P 500 inclusion.

2. Foundry and Gotham platforms solidify Palantir’s position in AI and data analytics.

3. High growth potential, but profits will take time to materialize.

4. Palantir’s valuation is 300% higher than peers, raising concerns.

5. Investors should wait for a more reasonable price before investing.

Introduction

Palantir is at the center of attention in the investment world, and it’s easy to see why. The company has grown in both commercial and government sectors, and its recent addition to the S&P 500 has sparked even more excitement. This inclusion means more institutional investors, like index funds and ETFs, are likely to buy its stock, pushing prices higher. Palantir is projected to achieve $1.2 billion in operating profits by 2026, which adds to the hype and shows a bright financial future ahead. But beyond these numbers, there’s something even stronger at play, often referred to as “animal spirits.” This term describes when investors act based on excitement and emotion rather than logic. In Palantir’s case, many investors are buying the stock for its potential rather than its actual value today. This enthusiasm often pushes stocks higher than they’re worth, and that’s when hype begins to overtake reality. Palantir’s stock has risen by over 100% this year alone, driven largely by this kind of market excitement. While it’s tempting to jump in, as value investors, we should be cautious and avoid getting swept up in the hype.

What Makes Palantir Stand Out

Underneath all the excitement, Palantir has built a very strong foundation that sets it apart in the tech industry. The company excels in artificial intelligence and data analytics, two fields that are becoming essential for businesses today. Palantir’s key platforms, Foundry and Gotham, play a big role in this. Foundry helps businesses analyze large amounts of data to make smarter decisions, while Gotham is tailored for government use, especially in defense and intelligence. This dual approach gives Palantir a wide range of customers, from large corporations to key government agencies. Palantir’s ability to handle and process huge amounts of data in real time makes it indispensable for organizations that rely on efficiency and accuracy. The company’s recent contract wins in areas like healthcare, finance, and defense only strengthen its position. Many investors believe in Palantir’s long-term potential because of its position in these fast-growing industries. However, it’s important to remember that even a strong foundation doesn’t mean the company is always worth its current price.

A Promising Future Ahead

Looking to the future, Palantir’s growth prospects appear very promising. The company is seeing strong momentum, especially in its U.S. commercial and government divisions, where AI and data analytics are in high demand. In the government sector, Palantir’s work with the Department of Defense, through the Open DAGIR project, shows how deeply the company is involved in important national infrastructure. This project aims to improve AI capabilities in military operations, positioning Palantir as a key player in the future of defense technology. On the commercial side, Palantir continues to expand its customer base thanks to the growing demand for its Artificial Intelligence Platform, which is being used in industries like healthcare and logistics. However, it’s important to keep expectations in check. While Palantir’s future looks bright, the company still needs to turn its long-term contracts and growth plans into steady profits. Investors should be careful not to get too caught up in the company’s growth story without considering the risks. It will take time and careful execution for Palantir to meet these high expectations.

Is Palantir Too Expensive?

One of the biggest concerns surrounding Palantir is its current valuation. While the company has shown great progress and strong potential, its stock price is trading at a level that raises concerns, especially for value investors. Palantir’s EV/EBIT ratio is currently 60 times its projected earnings, making it much more expensive than its peers in the information technology sector. This means Palantir’s stock is trading at a 300% premium compared to other companies, which makes it stand out as very expensive. For value investors, such a high premium is hard to justify, even if the company has good growth prospects. Essentially, the market is acting as though Palantir has already met all its future goals, leaving very little room for mistakes. If the company fails to meet these high expectations, even by a little, the stock could see a sharp decline. As careful investors, it’s important not to pay for potential that hasn’t been fully realized yet, especially when the price is this high.

The Risks of Buying into the Hype

Buying into a stock that’s driven by excitement can be risky, especially for value investors who focus on solid fundamentals. In Palantir’s case, its rapid rise has been fueled by investor enthusiasm more than actual earnings. When a company’s price jumps this fast, it’s often because people are betting on what the company might achieve in the future, not what it’s doing today. This is where the risk comes in. Although Palantir’s future looks bright, its current stock price reflects a lot of speculative optimism. As a value investor, you want to avoid falling into the trap of buying a stock based on hype, especially if the numbers don’t fully support its price. We’ve seen many cases before where companies with big promises didn’t meet expectations, leading to losses for investors who bought in at inflated prices. It’s always wiser to be patient and wait for the right price instead of jumping in too soon.

Our Thoughts: Patience Over Excitement

For value investors, patience is one of the most important qualities. The essence of value investing is to buy great companies at reasonable prices, and Palantir presents a tough choice. On one hand, Palantir has huge potential. Its technology is advanced, its customer base is growing, and its future in AI and data analytics looks very promising. On the other hand, the current valuation doesn’t match up with Palantir’s actual earnings today. While it might be tempting to invest in Palantir’s growth story, value investors understand that paying too much, even for a great company, can lead to disappointment. Instead of jumping in at today’s high price, the smart move is to wait for the stock to come down to a level that better reflects the company’s current earnings. This patient approach allows us to invest in growth without overpaying, ensuring we get both security and potential.

Conclusion

In conclusion, Palantir is an exciting company with strong potential, but we need to approach it with caution as value investors. While the company’s growth in AI and data analytics is promising, the stock’s current price is simply too high for those focused on solid fundamentals. Instead of buying into the excitement, it’s better to wait for a more reasonable price before investing. If you have any questions or would like to discuss this more, feel free to reply to this email!

Happy investing!
Josh

The information is provided for educational purposes only and does not constitute financial advice or recommendation and should not be considered as such. Do your own research.