Palantir Technologies (NASDAQ: PLTR) is a company that has been gaining significant traction thanks to its extremely impressive AI offerings, so it’s only natural that PLTR stock managed to successfully capitalize on the AI boom, soaring by a staggering 190% over the past year. This year, PLTR stock is up 37% year-to-date, leaving many investors wondering about where the stock is headed next after a recent sell-off from its 2024 peak.
Ark Invest’s CEO, Cathie Wood, has an idea of where PLTR stock is going, as she recently increased her holdings massively. Here’s why she made this decision.
Cathie Wood’s PLTR Stock Buys
Cathie Wood’s investment firm, Ark Invest, recently made two large buys of Palantir shares. Specifically, Ark acquired 100,344 Palantir shares valued at $2.26 billion, just one day after they had purchased 45,229 shares worth $981,923. It seems like Ark Invest is betting heavily on Palantir, which is seen as great sign for PLTR stock as the buys came ahead of the company’s upcoming earnings report on May 6th. Analyst expectations for Palantir’s earnings are positive, so Ark likely believes the report will boost Palantir’s stock price. By making these major share purchases now, Ark Invest is positioning itself to benefit if Palantir does indeed post strong earnings results next month.
Analyst consensus estimates indicate that Palantir will report $625.33 million in revenue for Q1 2024, resulting in an EPS of $0.08. This would represent significant growth compared to Q4 2023 results of $525.19 million in revenue and EPS of $0.05. This would represent Palantir’s slowest revenue growth rate yet as a public company, indicating some potential deceleration, especially in the company’s government business. However, according to analysts, Palantir’s commercial business revenue is expected to grow at a much faster rate of 34% year-over-year. While Cathie Wood and Ark Invest have made large purchases signaling their bullishness on PLTR stock, not all analysts agree with them.
Valuation Concerns Persist
While Cathie Wood and Ark Invest have made large purchases signaling their bullishness on PLTR stock ahead of earnings, not all analysts agree with them, with some choosing to remain cautious on the stock’s valuation and outlook. For instance, Brian White of Monness Crespi Hardt recently upgraded PLTR Stock from “Sell” to “Neutral” but did not add a price target, indicating limited upside from current levels after substantial gains over the past year.
White wrote that Palantir is well-positioned to benefit from the rise in AI adoption and volatile geopolitics, but he believes that the valuation remains stretched. Currently, PLTR stock trades around 61.8 times the earnings expected for the coming 12 months., and the S&P 500 trades around 20 times. Additionally, out of 20 analysts surveyed by FactSet, 5 rate Palantir a “Buy”, 7 are at “Hold”, and 8 have “Sell” ratings. These mixed opinions stem from concerns that Palantir’s valuation is excessive given growth projections.
Therefore, the upcoming Q1 earnings report will be key to validating Palantir’s growth trajectory, especially when the company discusses the growth of the commercial side of its business, and Ark Invest’s bullish stance.
Unusual Options Activity
The reason why PLTR stock dipped over the past few weeks actually has nothing to do with the stock or the company themselves. Instead, it looks like most of the losses come from general inattention and sentiment cooling after last quarter’s great earnings report sent shares soaring. Therefore, this isn’t really a big “dip” for investors who want to load up on Palantir shares to buy, but still, this stock is down enough that shares are worth buying before the next leg upward and that leg may be coming sooner than we think, as some recent unusual options activity points to hefty expectations for the stock within the next month.
We’re not saying that option flows should always be considered great catalysts for stocks, since some trades are done to hedge or execute for other reasons, but this Palantir trade is worth paying attention to. Barchart recently showed an unusual options activity report that showed that almost 7,000 call option contracts expiring May 17th have traded. The strike price is $26.50, which is an upside of 16% from the stock’s current price. This means whoever bought these calls is very optimistic about the near-term outlook for PLTR stock.
Along with that, the premium at the mid-price is only 41 cents or just 0.15% of the call strike price, meaning that short-sellers are not making much money on this trade. Therefore, the initiating trade possibly came from long buyers of the calls. These call options could be attractive to near-term buyers as the company is set to report its Q1 earnings on May 6th, and that is well before the expiration period of these out of the money call options.
The investors in these calls do not necessarily have to hope that the stock will rise to $26.50 by May 17th. Rather, if the earnings turn out to be great, the extrinsic value of the options could likely push their price well over 41 cents. Keep in mind that the downside risk is extremely high. For example, the intrinsic out of the money option like this is zero. That is because unless the stock rises to $26.50 or higher on or before the close on May 17th, the calls have no intrinsic value.
In other words, investors in these calls are essentially gambling, and highly dependent on the sentiment related to the outlook for the company, which brings us to our main point here; people buying this many call options for Palantir could be a sign that the earnings will be great.
PLTR Stock Forecast
Palantir has multiple avenues to sustain strong growth despite potential slowing in government revenue. Most critically, Palantir aims to rapidly expand its commercial business through initiatives like its “bootcamp” sales and marketing events. These immersive camps have proven successful at attracting new commercial customers by providing hands-on software demos and experiences. Palantir held 500+ bootcamps last year and plans 5 per day globally in 2024.
Demand for Palantir’s offerings appears robust, and CEO Alex Karp likened interest to a sold-out rock concert. However, analysts note that Palantir’s complex software may require increased customer support expenditures, which could impact the company’s margins later on.
Either way, PLTR stock has historically traded within a tight band before surging, then settling at or near a new floor. For a long time, that floor hovered in the $15 range, then strong earnings pushed the price to $25 before it settled into today’s roughly $20 lower limit. If the company’s May 6th earnings report echoes past trends, the recent dip might be the last chance to buy Palantir at these prices.
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