Palantir Is Falling Today -- Is the Stock a Buy Right Now?

Key Points

• Palantir is falling today after the Federal Reserve announced a cut of 25 basis points for interest rates.

• Some investors had been hoping for a 50-basis point cut.

• Palantir is still trading at a heavily growth-dependent valuation.

• 10 stocks we like better than Palantir Technologies ›

Palantir Technologies (NASDAQ: PLTR) stock is seeing a pullback in Wednesday's trading. The software company's share price was up down 2% in the day's trading as of 3:15 p.m. ET, amid a 0.4% decline for the S&P 500 (SNPINDEX: ^GSPC) and a 0.6% decline for the Nasdaq Composite (NASDAQINDEX: ^IXIC). The stock had fallen as much as 5.3% earlier in the day's trading.

Palantir's valuation is moving lower today following news that the Federal Reserve is cutting the benchmark interest rate by 25 basis points. While lower interest rates are typically good for companies with highly growth-dependent valuations, some investors were hoping for a bigger rate cut.

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Is Palantir stock a buy right now?

On the heels of weak job numbers that suggest that the U.S. economy could be stalling, most investors were betting that the Federal Reserve would cut interest rates at its meeting this week. In light of weak jobs growth in August and big downward revisions for previously reported jobs additions, some investors were hoping that the Fed would serve up a 50-basis point cut. That didn't happen.

Palantir is a leading player in artificial intelligence (AI) software and has managed to scale its business at a very impressive pace. The company has been scoring big wins with public-sector and private-sector customers, and it has a huge runway for growth as adoption for AI services continues to increase.

On the other hand, the company trades at a valuation that sets the stage for big sell-offs if business momentum falls short of expectations or conditions emerge that drive sell-offs for the broader market. Even among highly growth-dependent tech companies, Palantir's forward P/E value of 261 and forward P/S ratio of 96 stand out for the strong growth levels priced into the company's valuation.

For investors with a long time horizon and a high risk tolerance, I think Palantir can be a long-term winner -- but its risk profile suggests it's likely to be too volatile for many potential buyers.

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Keith Noonan 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.