The Decline of Palantir Technologies (NASDAQ:)
Palantir Technologies (NASDAQ:) stock is officially in a bear market, experiencing a drop of more than 20% for any length of time. This decline has left many retail investors who bought the stock during its upward trend feeling unsettled. As the stock fills the gap on the downside, investors are left wondering what is driving this decline and how much further it might fall.
Institutional Involvement Is a Double-Edged Sword
Two significant events drove Palantir’s growth in the second half of 2024. The company was included in the , and it switched its listing to the exchange. These events compelled institutional investors who had been on the sidelines due to the stock’s high valuation to take action.
However, retail investors are realizing that the entry of big money into the market changes the game. With substantial investments in the stock, much of the current sell-off in PLTR stock is likely coming from institutions.
- In the last 12 months, Palantir has shown impressive revenue growth from 12% to 36%.
- The company’s free cash flow margin has increased from 6% to 55%.
- Despite the recent sell-off, Palantir still boasts a market cap of around $196.65 billion on trailing 12-month revenue of approximately $2.6 billion.
This high valuation is pricing in significant future growth. However, institutions are also capitalizing on the opportunity to catch up on their investments in Palantir at a more favorable price.
Efficiency Is Palantir’s Middle Name
The PLTR stock slide began partly due to concerns that the U.S. Department of Defense (DOD) was going to “reallocate” about 8% of its budget. Although Palantir generates over 50% of its revenue from the federal government, including a significant portion from the DOD, this does not necessarily imply that the budget will be reduced.
There is sentiment that Palantir will benefit from a focus on efficiency, as the company’s products are designed to help its customers operate more effectively.
“The single best thing that helps my company is meritocracy, pen test everything…maybe there’s a contract that doesn’t deserve to be renewed, great. Maybe there’s a contract that does deserve to be renewed that gets canceled.” – Alex Karp, CEO of Palantir
Both Alex Karp and Shyam Sankar, Palantir’s chief technology officer, express confidence that the company’s values align with the mission to bring meritocracy and transparency to government. They believe that lack of accountability in government, not efficiency, poses the real competition for Palantir.
PLTR Stock Is at a Critical Point
Palantir stock is currently trading near its 50-day simple moving average (SMA). If it falls below this level, it could potentially drop to around $73, close to the consensus price of analysts on MarketBeat and slightly above the stock’s current 100-day SMA.
On February 20, Loop Capital initiated coverage on Palantir stocks with a Buy rating and a price target of $141. Although PLTR stock appears oversold, long-term investors should not panic, as the technical signals point to a potential increase in stock price. With the company’s earnings not scheduled until May, the stock is likely to experience volatility in line with the broader market trends.
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Analysis:
Palantir Technologies’ stock decline into a bear market indicates a significant shift in investor sentiment and market dynamics. The involvement of institutional investors, driven by key events and the company’s high valuation, has played a pivotal role in the stock’s recent performance.
Concerns regarding the potential reallocation of the U.S. Department of Defense’s budget have impacted Palantir’s stock, despite the company’s focus on efficiency and its alignment with government missions. The company’s resilience in the face of market challenges reflects its commitment to meritocracy and transparency.
As Palantir’s stock hovers near critical technical levels, investors should closely monitor its movements and consider the perspectives of analysts and market experts. The stock’s potential for recovery and growth, coupled with the upcoming earnings report, suggests that it may continue to be a focal point of market activity in the near future.