If you’re seeking exposure to the cybersecurity and artificial intelligence market, you may be tempted to load up on Palantir Technologies (NYSE:PLTR) stock. After all, a famous tech-market investor recently bought millions of shares of Palantir. Don’t hit the “buy” button, though, until you’ve considered a potential issue with one of Palantir’s government contracts.
Also, remember that just because Palantir stock declined somewhat, this doesn’t automatically mean it’s a bargain. After conducting your due diligence on Palantir Technologies, you’ll surely think twice before committing your hard-earned capital to a risky investment.
Who Bought 1.5 Million Shares of PLTR Stock?
Ark Invest CEO Cathie Wood is known for taking chances on innovative technology companies. Was it unwise for her to make a monster-sized investment in Palantir Technologies, though?
Reportedly, Wood (or more precisely, several Ark Invest funds) purchased over 1.5 million shares of PLTR stock in total while it was down from its peak price. So, if you’re a fan of Wood and Ark Invest, you might choose to pick up a few Palantir Technologies shares for your portfolio.
However, don’t just follow Wood’s buy-the-dip strategy without doing your own research. A dip isn’t the same thing as a good deal, after all. Remember, Palantir Technologies’ GAAP-measured trailing 12-month price-to-earnings (P/E) ratio of around 60x is much higher than the sector median P/E ratio of 26.08x.
Don’t get the wrong idea. I concur with Wedbush Securities analyst Dan Ives’ statement from earlier this year, that Palantir Technologies is “poised to be a major player in this AI Revolution over the next decade.” That’s a fair assumption to make, but it doesn’t mean that sensible investors should overpay for Palantir stock.
A Potential Problem With Palantir Technologies’ Army Contract
Here’s another issue with Palantir Technologies that you might encounter in your research. Specifically, Palantir’s contract with the U.S. Army may be compromised due to perceived friction concerning data ownership.
William Blair analyst Louie DiPalma recently brought this potential problem up. Palantir Technologies’ current, multimillion-dollar contract with the Army is set to end soon. So, it will probably remain intact. Yet, there’s an issue that could jeopardize Palantir’s business relations with the Army.
Reportedly, U.S. Army officials gave a presentation and some of the comments made during that presentation may have indicated friction over data ownership issues. DiPalma provided further clarification on this.
“The tone of the comments and plan to ‘maximize the use of open-source vendors’ provide a strong indication that Palantir’s renewal contract… will be significantly less than the original $458 million,” he said.
In response to this, Lisa Gordon, Palantir Technologies’ head of global communications, stated, “There is no data ownership conflict between Palantir and the Army.” Gordon further asserted, “Palantir does not have or retain any ownership rights to customer data, across any of our Government or Commercial customers.”
Palantir Stock: Be Cautious and Wait Patiently
Prospective investors should stay tuned for future developments concerning Palantir Technologies’ business relations with the U.S. military. Until then, it’s wise to steer clear of Palantir stock.
Moreover, just because Wood’s funds bought PLTR stock on the dip, this doesn’t mean it’s actually cheap. Sure, Palantir Technologies is part of the AI revolution and that’s exciting. Still, prudent investors should only invest in Palantir when the risk-to-reward balance is favorable.
Therefore, be patient and let Palantir stock drop 10% or even 20%. Then, you can re-evaluate the company and the stock. In the end, you can still follow Wood’s trades while also getting in at a more reasonable price.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
