Cathie Wood Just Sold $21 Million of Palantir Stock. Here's Why That Could Be a Big Mistake.

After Palantir Technologies (NASDAQ: PLTR) delivered an impressive second-quarter earnings report last week, the stock market rewarded its success with a big share price move. Palantir stock is up more than 35% over the last week, and its market cap has grown by more than $115 billion since July 31.

Those gains have analysts from Citi, Northland Securities, Mizuho Securities, and more upping their price targets, and some project that the data analytics company's shares could rise by nearly 50% over the next year. But Cathie Wood, founder and CEO of Ark Investment Management, isn't waiting around. Her asset management firm's family of exchange-traded funds (ETFs) have sold $21 million worth of Palantir stock since the company's Aug. 3 earnings report.

Why is Wood taking profits now? I believe it says a lot about her overall strategy.

Ark Invest CEO Cathie Wood. Image source: Getty Images.

Taking profits

Wood began moving shares the day after the earnings report that wowed the market. Palantir's shares had jumped by 29% in a single day, so Wood's decision to take profits was well-timed.

Five of her ETFs sold off just over $21 million in Palantir stock over three days.

Data source: cathiesark.com.

While that's a lot of shares, it was only a small percentage of the amount of Palantir stock in Wood's ETFs. Ark still holds $451 million in Palantir stock, making it the fifth-largest holding in her portfolio. The stock makes up 3.5% of Ark Invest's holdings.

Buying and selling is par for the course at Ark

Ark's portfolios are actively managed, and Wood moves in and out of positions all the time. (She made more than 50 trades on Aug. 6 alone). Wood is known for her focus on companies pursuing disruptive innovation, primarily in technology, medicine, and finance, and her ETF's portfolios include many companies working in artificial intelligence, cloud computing, robotics, blockchain, and space exploration.

She also often rebalances her portfolios by trimming outsize positions. While Palantir isn't a megacap stock, it posted mammoth gains over the last week, making it a good candidate for trimming.

And thanks to the 25% one-day gain following Palantir's earnings report, Wood was able to take sizable profits that she could redeploy toward other opportunities that she believes are undervalued. Among the numerous stock purchases Ark made last week were Space Exploration Technologies, Cerebras Systems, Block, and Coinbase Global.

However, I think Palantir has much more short-term and long-term potential than any of those companies. SpaceX is one of Wood's favored holdings right now, with the second-greatest weighting in her company's ETFs. But shares of Elon Musk's company will likely be highly volatile as it invests heavily in data centers and AI infrastructure to build out its fledgling business.

I would much rather keep my money in Palantir and its highly successful AI-powered software platform, which the market is cheering for right now.

Palantir's disruptive AI is changing how companies work

There are few companies as disruptive as Palantir, which is teaching its customers how to best incorporate AI into their systems to make them more productive. Palantir's ontology system creates a digital twin of a client's operations for its AI to review, analyze, and recommend improvements.

"I think strategically what's really interesting to watch ... was they're not only helping their customers modernize their data, but they're actually helping customers kind of optimize and choose the best model," Tyler Radke, a senior equity analyst at Citi, said in an interview on BNN Bloomberg last week.

Palantir closed $3.37 billion in total contract value in the second quarter alone, signing 220 million-dollar deals, with 73 of those valued at least $10 million. That helps explain how its U.S. commercial revenue grew 149% in the second quarter, marking the fourth consecutive quarter of more than 100% revenue growth for that segment of the business.

Wood's philosophy works for her. But Palantir still has a long road ahead, and I think she's leaving money on the table by selling the stock now.

Citigroup is an advertising partner of Motley Fool Money. Patrick Sanders has positions in Palantir Technologies. The Motley Fool has positions in and recommends Block and Palantir Technologies. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.