Palantir's 8% Slide: When AI Euphoria Meets Valuation Gravity
Palantir fell almost 8% on Tuesday despite beating Q3 estimates and lifting guidance. The pullback centered on one thing: valuation. After a year-to-date run of more than 170% into a record close, the setup was fragile.
Adding to the pressure, Michael Burry disclosed put positions on Palantir and Nvidia via his fund's latest 13F filing. That kind of signal doesn't change the fundamentals, but it does shape sentiment - especially when the stock is trading at extremes.
The numbers that matter
Revenue grew 63% to $1.18 billion in Q3 versus $1.09 billion expected. The company guided Q4 sales to about $1.33 billion, ahead of the $1.19 billion consensus. That makes 21 straight quarters of beating revenue estimates.
EPS (ex-items) landed at $0.21 versus $0.17 expected. By segment, US commercial sales rose 121% year over year to $397 million, while US government grew 52% to $486 million. Management noted strong momentum in the US and softer conditions in Europe.
Why the stock sold off anyway
- Valuation: Palantir recently traded around an 85x price-to-sales multiple - the highest in the S&P 500. That's a nosebleed zone even with 60%+ growth.
- Durability: Investors wanted more visibility into 2026. Management guided the current quarter, but the market is now paying for the outer years.
- Concentration: Exceptional US strength vs. lagging Europe raises questions about how broad and repeatable the demand story is outside core markets.
- Sentiment: Burry's disclosed puts won't change cash flows, but they do encourage profit-taking in crowded winners.
What the valuation implies
At ~85x sales on a ~$4 billion run rate growing ~63%, the market is discounting multiple years of high growth and expanding margins. That can work - until it doesn't. Any wobble in growth velocity, pricing, or international adoption can compress the multiple fast.
Said differently: the bar is higher than the results. As CEO Alex Karp put it, "We are in a nosebleed zone. No one else is here."
Voices from the Street
Some analysts praised the execution while questioning the multiple. One called the figures "disengaged from fundamentals" at this valuation. Karp, for his part, said betting against AI is "crazy" and described the quarter as "arguably the best results that any software company has ever delivered."
Positioning ideas (for pros)
- Barbell exposure: Keep core AI beta via a diversified basket; underweight single-name concentration risk where multiples are stretched.
- Pairs and hedges: Long a cheaper AI beneficiary; short or buy puts on PLTR to neutralize factor exposure. Consider calendars or vertical put spreads into catalysts.
- Collars for holders: Finance downside protection with covered calls while letting a pullback reset the multiple.
- Wait for visibility: Re-engage on pullbacks that bring P/S closer to high-growth software comps or once 2026 guidance tightens the range of outcomes.
Key catalysts to watch
- US commercial pipeline durability and deal sizes into Q4 and early 2025.
- International reacceleration, especially Europe; traction from new allied deals (e.g., Poland) in cybersecurity and AI.
- US federal budget cadence and award timing that can swing quarterly government revenue.
- Pricing and margin trajectory for AIP deployments as customers scale usage.
- Competitive response from large platforms and defense primes.
- Share supply: insider sales and SBC overhang during strength.
- 13F flows from other hedge funds that can amplify momentum up or down.
Context on the business
Founded in 2003 with backing that included Peter Thiel and the CIA's venture arm, Palantir aggregates data from disparate sources to help customers make faster decisions with AI. The company serves governments and enterprises across defense, security, and cost-optimization use cases. US revenue remains the anchor; management called Europe "stagnant" for now.
Bottom line
Execution is exceptional. Expectations are even higher. If the growth story continues at the current clip and spreads internationally, bulls can argue the multiple settles at a premium. If growth cools or guidance disappoints, the air pocket under a record-high P/S can be unforgiving.
For reference on public disclosures, see the SEC's overview of 13F filings: SEC Form 13F. Company materials: Palantir Investor Relations.
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