Why Palantir Stock Soared 4.7% Today
Key Points
November's inflation reading came in well below expectations, boosting hopes for another Federal Reserve rate cut.
The data may be skewed, however, given the difficulty in collecting data during the recent government shutdown.
The stock's valuation remains extraordinarily stretched, even as the company continues to grow rapidly.
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Shares of Palantir Technologies (NASDAQ: PLTR) rose on Thursday, finishing the day up 4.7%. The jump came as the S&P 500 and the Nasdaq Composite finished up 0.7% and 1.3%, respectively.
The artificial intelligence (AI) company's stock recovered most of Wednesday's decline after a softer-than-expected inflation report raised market hopes of more rate cutting by the Federal Reserve.
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Cooling inflation lifts Palantir and other growth stocks
The Bureau of Labor Statistics (BLS) released its November report showing annual inflation now clocking in at 2.7%, well below the expected 3.1%. The news boosted stocks across the market, but had a particularly significant impact on more speculative stocks, like Palantir's, as it increases the likelihood that the Federal Reserve will cut rates at its next meeting. Lower rates tend to lead to investors taking on more risk.
The stock may soon give back what it gained today; later in the day, several high-quality news outlets like the Wall Street Journal began covering the irregularities in the latest report stemming from the recent government shutdown. Many economists believe that inflation is higher than what the report states.
Image source: Getty Images.
Palantir's valuation remains a serious concern
And investing in Palantir is a risk. While its business has been highly successful so far, and is continuing to grow rapidly. The fact is that Palantir's stock is wildly expensive. The company's price-to-earnings ratio (P/E) currently sits above 400. Its price-to-sales ratio (P/S) is over 115. These are astronomical.
I do not believe Palantir can justify its valuation, even with continued success.
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
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