Palantir's Share Price Potentially Dropping to $40?
Rewritten Article:
Palantir Tech Stock: Hang on Tight or Bail Out?
Ever thought about owning shares of Palantir Technologies (NASDAQ: PLTR) and watching it plummet by 50% or more? While it might seem like a dramatic scenario, it's not far-fetched – history shows it's happened before, and it could happen again. This year, PLTR stock has seen some wild swings. It surged over 60% from early January to top $120 per share by mid-February, then dropped about 38% from that high, now trading around $80 per share. Palantir's soaring popularity stems from the buzz around generative AI, Donald Trump's re-election as U.S. President, and strong earnings in recent quarters. Yet with broader markets experiencing a substantial selloff due to growing fears of a U.S. recession following President Trump's trade tiffs with key allies, Palantir's stock could face an even steeper correction, given its lofty valuation.
So, is it time to bail out? The truth is, individual stocks tend to be more volatile than a well-diversified portfolio. If you're after growth with less volatility, consider the High-Quality Portfolio, which has outperformed the S&P 500 and delivered returns greater than 91% since its inception.
Here's the Scoop:
- In a downturn, PLTR stock may take a major hit. In 2022, for instance, PLTR stock lost over 70% of its value in just a few quarters. With shares already sliding from $120 to $80 in just a few weeks, there's speculation that if a similar situation were to occur, PLTR stock could plummet to around $40.
- Palantir's revenues have grown significantly in recent years, increasing at an average rate of 23.0% over the last 3 years (compared to a 6.9% rise for the S&P 500). However, with the stock trading at a lofty 48x consensus FY'25 revenue and about 140x FY'25 earnings, Palantir might be more susceptible to the broader economic environment.
- Approximately 55% of Palantir's 2024 revenue comes from government contracts, which are often unpredictable and uneven, making them less reliable. Plus, the new Trump Administration has been working to ease geopolitical tensions, which could reduce demand for Palantir's software and services, traditionally in high demand during periods of geopolitical uncertainty.
- Palantir's margins have expanded in recent years – rising from about 26% in 2023 to nearly 35% in 2024 – but that trend might not continue. If Palantir adjusts its strategy to broaden its customer base, costs may increase, impacting margins. Competition from tech giants like Microsoft also poses a risk to Palantir's pricing power and profitability.
The Bottom Line:
History shows that Palantir's stock has been more volatile than the S&P 500 during some downturns. Therefore, while investors hope for a gentle landing for the economy, it's essential to be prepared for a potential harsh landing – especially given the risks Palantir faces. Our dashboard "How Low Can Stocks Go During a Market Crash" highlights the performance of key stocks during and after the last six market crashes.
(For the tech-savvy, here's a fun fact: BlackRock CEO issued a serious warning amid the $1 trillion Bitcoin and crypto price sell-off. Ironically, iOS 18.3.2 also came with a surprise iPhone update that fixed one bug but added one frustration. And buckle up, iPhone users: iOS 18.3.2-Update Now Warning Issued.)
- Despite Palantir's revenue growth outpacing the S&P 500 by a significant margin, the stock's high valuation and reliance on government contracts make it more susceptible to the broader economic environment, potentially impacting its performance in 2023.
- In a similar scenario to 2022, when Palantir's stock lost over 70% of its value in a few quarters, analysts speculate that a drop from the current $80 per share to around $40 is possible, if shares follow the same trajectory.
- As Palantir's margins have expanded in recent years, the company may consider adjusting its strategy to broaden its customer base, potentially increasing costs and impacting margins, making it vulnerable to competition from tech giants like Microsoft.
