Why Shares of Palantir Soared Today
Key Points
Palantir is a pure-play artificial intelligence company, making it a direct beneficiary of the AI trade.
Palantir helps companies and organizations leverage AI to manipulate and interpret data in ways that were once unimaginable.
The stock trades at a massive valuation.
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Shares of the artificial intelligence decision-making company Palantir (NASDAQ: PLTR) rose nearly 4.8% today, as investors poured back into AI stocks. Palantir is one of the purest-play AI companies in the market, making it an obvious beneficiary.
Life again in the AI Trade
Ever since New York Federal Reserve President John Williams, during an event last Friday, hinted at being in favor of another interest rate cut at the Fed's final meeting of the year in December, the market has suddenly become very optimistic about such an event materializing. Tech and AI stocks tend to perform better in a falling interest rate environment, as investors increase their appetite for risk to achieve more yield.
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In other AI-related news today, Amazon announced that it would invest as much as $50 billion in AI infrastructure to provide additional capacity for its government clients. AI stocks typically rally on news like this, as investors view continued spending on AI infrastructure to be indicative of AI demand.
AI bubble talk hurt the market for most of last week, but it's clear that investors are conflicted on whether there is a bubble and what inning of the AI trade the market is really in right now.
Be cautious of pure-play AI stocks
Timing the market and the AI trade will be nearly impossible, so don't try it. The key here is to pick your spots. That's why investing in large tech conglomerates with AI upside, such as Amazon, is a safer move than betting on pure-play AI stocks with extremely high valuations, like Palantir.
Trading at 224 times forward earnings, I would steer clear of Palantir right now. The company undoubtedly is impressive but even the best stocks have their limits when it comes to valuation.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Palantir Technologies. The Motley Fool has a disclosure policy.
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