Why Palantir Technologies Stock Just Dropped
Key Points
Rumors that Michael Burry may be shorting Palantir caused a sell-off today.
The rumors have not been confirmed.
Palantir doesn't look very much like other "AI stocks."
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Palantir Technologies (NASDAQ: PLTR) stock tumbled 4% through 12:45 p.m. ET Wednesday.
You can probably blame Michael Burry for that.
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Image source: The Motley Fool.
Did Burry just bury Palantir?
As StreetInsider.com reports, Burry -- famed for calling the 2008 housing market meltdown before it happened -- has placed short bets against multiple high-profile artificial intelligence names, of which Palantir may have been one. (Specific tickers targeted by Burry have not yet been confirmed.)
And here's the thing: Selling off Palantir on one investor's say-so -- even Burry's -- seems less than prudent, especially when there are so many other, more logical AI names that might be targeted. And when you consider further that we don't even know for sure that Burry sees anything wrong with Palantir stock, and may not be shorting it at all, selling Palantir seems even less prudent.
Palantir versus the rest
Is Palantir an AI stock? Sure. But it's also very much a defense stock selling heaps of (AI-enhanced) high-tech weapons systems to the government in an increasingly dangerous world. This would seem to make Palantir less vulnerable to worries that investment spending to build out AI can't be supported by the revenues AI brings in for the companies selling it.
Is Palantir an expensive stock? At 145 times trailing earnings, it looks expensive. In contrast to more direct AI plays, however, Palantir boasts impressive free cash flow -- $2.7 billion last year, more than its reported net income -- and a slightly more palatable price-to-free cash flow ratio of 115.
With a long-term growth forecast of 54% annually, the stock's not quite cheap enough for me to buy it just yet. But Palantir's advantages over other "AI stocks" look substantial enough that I wouldn't sell it now, either.
Not even if Michael Burry is shorting it.
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Rich Smith 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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