The artificial intelligence (AI) narrative is entering a new chapter, and it’s time for the “Magnificent Seven” stocks to move over. Throughout 2024, investors have been presented with a host of new, emerging players that are working alongside big tech and have proven they are here to compete in the AI realm.
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In my eyes, Palantir Technologies(NYSE: PLTR) has become the most interesting case study among smaller technology companies. So far in 2024, shares of Palantir have gained 283% as of this writing, and the company stands as the best-performing stock in the S&P 500 this year.
And yet, as shares of Palantir continue to reach new highs, one notable investor has been dumping the stock in droves. I’m going to outline the moves Cathie Wood of Ark Invest is making, and detail why selling Palantir stock right now actually makes a lot of sense.
One of the more interesting things about Ark Invest is that the firm publishes a breakdown of the stocks it buys and sells each trading day.
Date
Shares of PLTR Sold
09/11/24
184,051
09/13/24
13,713
09/17/24
8,555
09/18/24
32,772
09/20/24
16,053
09/23/24
7,747
09/25/24
62,809
10/28/24
128,908
10/30/24
372,730
11/01/24
227,699
11/04/24
158,457
11/05/24
211,203
11/07/24
264,513
11/15/24
197,847
Data source: Ark Invest, Cathiesark.com. Table by author.
According to that data, Wood and her team reduced their holdings of Palantir across Ark’s various funds by roughly 1.9 million shares between Sept. 11 and Nov. 15.
Shares of Palantir have soared throughout 2024. But between Sept. 11 and Nov. 15 (the period of Ark’s selling), Palantir stock gained 89%.
In the chart above, the date of Palantir’s third-quarter earnings release is marked with a purple circle with the letter “E” in the center. As you can see, Palantir stock has risen considerably following that blowout Q3 report.
While such gains have been great for Palantir shareholders, the magnitude of these upswings should come with a hard look at the fundamentals. As illustrated in the graph below, Palantir’s price-to-sales (P/S) multiple of 60 is the highest among leading software-as-a-service (SaaS) businesses — and it’s not particularly close, either.
I cannot stress this point enough: Palantir is trading at more 60 times sales, notearnings. While Palantir is indeed generating positive net income and free cash flow, both measures are still relatively small right now.
Whenever a stock experiences a pronounced rally in a short time period, it’s appropriate for fund managers to rebalance their portfolio. In this case, Wood’s sales of Palantir coincide with the company being added to the S&P 500 as well as an impressive earnings report. Both of these events became positive near-term catalysts for Palantir stock.
It’s possible Palantir’s weighting across the different Ark funds was becoming too high, so Wood and team decided to trim the position and take some profits off the table. While Palantir has demonstrated an ability to accelerate both revenue and profits, the valuation expansion seen in the chart above suggests the stock may be overbought right now.
As a Palantir shareholder, I very much believe in the company’s future thanks to lucrative partnerships with big tech firms such as Amazon, Microsoft, and Oracle. Moreover, Palantir is quietly becoming a major force in the U.S. military’s defense tech effort — an opportunity Mordor Intelligence estimates will be worth more than $60 billion by 2029.
That said, Palantir stock is undoubtedly pricey right now. If you’ve been holding the stock for a long time, consider trimming your position at this point. Although there’s still potential upside for Palantir, reducing your position at these valuation levels can also make sense.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Amazon, Microsoft, and Palantir Technologies. The Motley Fool has positions in and recommends Amazon, CrowdStrike, Datadog, Microsoft, Monday.com, MongoDB, Oracle, Palantir Technologies, ServiceNow, and Snowflake. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
