Excitement over the generative artificial intelligence trend peaked several months ago. However, in recent weeks, renewed enthusiasm for Palantir Technologies (NYSE:PLTR) exposure to the AI mega-trend, sparked by its latest quarterly earnings release, has led to a further lift for PLTR stock.
Although shares in the company, which provides AI and machine learning analytics software to clients in the public and private sectors, has yet to get anywhere near its 2021 highs (topping $35 per share), the stock did just recently hit a new 52-week high. Year-to-date, PLTR is up more-than three-fold.
Despite this convincing performance, some may wonder whether now is the time to take chips off the table. This is especially the case, following a recent development (more below).
Yet while some short-term turbulence may be in store, don’t view this sale, or another key concern, as reasons to make your exit. Here’s why.
PLTR Stock and Peter Thiel’s Recent Transaction
Already richly-priced prior to the post-earnings rally, Palantir shares at current prices are definitely in premium valuation territory. At current prices, the stock trades for around 80 times forward earnings.
But besides valuation concerns (which I will dispel later), another cause for worry may be news of insider selling, from an entity affiliated with Palantir co-founder Peter Thiel, no less. Thiel has built a multi-billion dollar fortune founding, building, and/or investing in high tech companies. Palantir has of course been one of his most successful ventures.
With this, many may be curious why, as Seeking Alpha reported Nov. 15, a venture capital fund (Mithril LP) affiliated with Thiel recently sold $48 million worth of PLTR stock, per a filing with the U.S. Securities and Exchange Commission (or SEC).
With co-founder Thiel seemingly cashing out, alongside other company insiders (who have sold millions worth of shares in recent months), are those most “in the know” about the company’s future prospects getting out while the going’s still good? I wouldn’t jump to that conclusion. Taking a closer look, it’s clear this isn’t the bearish indicator some may perceive it to be.
Clear-Cut Counters to Insider Selling and Valuation Concerns
Before you bail on PLTR stock, keep a few things in mind. For one, Mithril originally invested in Palantir more than a decade ago. It’s not out of the ordinary for a venture capital firm to eventually realize gains on an investment.
Also, this sale represents pales compared to the nearly 120 million shares that Thiel owns and/or controls. As for the other insider selling, remember that insiders sell for a variety of reasons, including for estate planning and diversification purposes. It’s not always a sign of bad times ahead.
As I discussed previously, Palantir is crushing it with private-sector sales, thanks to booming AI-related demand. While public-sector sales fell short last quarter, this segment could soon experience a growth resurgence as well.
The company still focuses on growth rather than on maximizing earnings. That’s evident by forecasts of modest earnings growth in the coming years. Still, investors could continue to bid up PLTR as revenue keeps trending higher, on the view that, once the company’s matures, taking its foot off the growth gas pedal will translate into a high level of earnings.
The Verdict
Don’t assume it’ll be smooth sailing ahead for PLTR. Besides strong quarterly results, another reason Palantir has rallied recently has been improved market sentiment, driven by news of easing inflation and the rising chances of interest rates coming down next year.
However, the inflation/interest rate issue hasn’t fully gone away. It could still drive another round or two of fear, uncertainty, and doubt among investors. Hence, PLTR, one of the more high-profile speculative growth stocks, may encounter some additional near-term turbulence.
Nevertheless, as valuation/insider selling are not cause for concern, there’s no need to exit, if you currently hold PLTR stock. As for those who have yet to buy, any near-term weakness could be prime time to initiate a position.
PLTR stock earns a B rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in PLTR. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
