The Palantir (NASDAQ:PLTR) share price pushed up, hovered around parity, and eventually pushed down in after-hours trading on Monday 3 November.
The share price action followed the company’s third-quarter earnings. The company impressively beat expectations, but clearly not by enough to impress the market — this is weird phenomenon that has become more common since the AI boom.
To be precise, Palantir reported third-quarter earnings per share (EPS) of $0.21, beating estimates by $0.04, on revenue of $1.18bn — up 62.6% year over year and $90m ahead of expectations.
Those are really good figures. But the market clearly wanted more, even though CEO Alex Karp described it as “arguably the best results that any software company has ever delivered”.
Shares are currently down 8% as I write.
Honestly, I think there’s good reason for it. It’s impossible to look at the results and not see the disparity between the earnings and the share price.
The stock is currently trading around 288 times forward earnings. The price-to-earnings-to-growth (PEG) ratio… 8.1!
The price-to-earnings ratio is projected to fall to 225.7 in 2026, 160.4 in 2027, and 109 by 2028. This suggests that earnings may gradually bring its valuation closer to traditional tech-sector levels.
Nonetheless, the valuation is almost entirely disconnected from reality. It’s born out of a belief that Palantir will dominate the data software sector.
However, there really is no guarantee that it will. It’s even got some pretty huge competitors to deal with.
A double whammy
It’s also come to light that Michael Burry — made popular by the film The Big Short — has taken bearish positions on Palantir as well as AI darling Nvidia.
This is according to the latest 13F filing for Scion Asset Management. It was made public shortly before Palantir’s third-quarter results.
The fund disclosed ‘put options’ on 1m shares of Nvidia and 5m shares of Palantir. A short position — or in this case, buying put options — is essentially a wager that a stock’s price will decline.
While most investors profit when share prices rise, short sellers aim to benefit when they fall. If the price drops, the put option increases in value, allowing the holder to sell at a higher, pre-agreed price.
However, it’s important to note that Burry has been an inconsistent market timer in recent years. Some of his warnings have missed the mark, while others have proved insightful in hindsight.
Nonetheless, his shorting activity carries weight among investors. I’d say this is particularly important now, a time when many are asking whether they might be buying into an AI-fuelled bubble.
So, should investors consider buying Palantir shares?
Personally, I think we all should look for safer options where the valuation, growth, and profitability data indicate a good business that could be manifestly undervalued.
