Why Palantir Stock Is Plummeting Today

Key Points

• Unlike many AI rivals, Palantir is profitable and growing revenue rapidly.

• Macro concerns are leading investors to sell out of tech, and Palantir's stretched valuation is making things worse.

• Palantir stock carries a sales multiple that far exceeds OpenAI's, despite OpenAI's substantially higher rate of sales growth.

• 10 stocks we like better than Palantir Technologies ›

Shares of Palantir (NASDAQ: PLTR) are falling once again. The stock is down 5% so far on Wednesday after falling nearly 8% yesterday. The drop comes as the S&P 500 lost 0.5% and the Nasdaq Composite lost 1.2%.

The AI-powered company is seeing its share slide as part of a larger sell-off in tech, as concerns over the health of the economy mount. Given its sky-high valuation, Palantir's stock is getting hit especially hard.

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Palantir stock plunges as tech sell-off intensifies

Among the companies that actually take artificial intelligence (AI) and apply it in the real world, Palantir has been a notable standout, delivering massive revenue and earnings growth while rivals like C3.ai and BigBear.ai are still operating deep in the red and seeing their sales stagnate.

That's led investors to pile into Palantir stock, which has reached an astronomical valuation of nearly 500 times earnings. That's not a particularly sustainable valuation, and as concerns mount after recent jobs data showed a slowing economy, many investors are rotating out of riskier tech stocks sitting near record highs.

Image source: Getty Images.

Citron Research takes aim at Palantir's valuation

Palantir was also the target of a short report from one of the most prominent short sellers on the market, Citron Research, which pointed out that after OpenAI's latest funding round, it is valued at roughly 17 times its sales. Palantir's stock carries a price-to-sales (P/S) multiple nearly seven times that of OpenAI -- the company at the very heart of the AI boom. Citron believes this is not rational.

I agree. Palantir may be firing on all cylinders, but its stock is disconnected from reality, and until it comes back down to earth, I would not invest.

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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.