The Bear Case for Selling Palantir: A Time to Take Profits?

Palantir Technologies (NYSE:PLTR) share price is making even the most bullish supporter scratch their heads about what to do next.

With the stock up a staggering 266% in 2024, shareholders are riding a bullish AI wave that is seemingly unstoppable.

But it’s not all unicorns and rainbows under the hood. A deeper dive into the financials reveals that the company’s valuation has reached levels rarely seen outside of historic market bubbles. Worse still, insiders are selling like there is no tomorrow. So, it is time for shareholders to take profits before the music stops?

Palantir’s Valuation Defies Standard Multiples

The magnitude of Palantir’s valuation mushrooming in 2024 tells a story that should give investors pause.

Trading at 43x calendar year 2025 revenue, the company’s multiple stands at more than double that of its nearest software competitor.

This isn’t merely a case of standard market optimism. A Jefferies analyst noted that the company’s 3x year-to-date ballooning in revenue multiple is unprecedented in today’s market environment.

Unlike the 2020-21 era frothiness, where multiple expansion was widespread across high-growth names, Palantir stands alone in its astronomical rise among infrastructure peers.

Insider Selling Sounds the Alarm

When the Captain leaves the ship sometimes it’s a sign that he knows there are rocks up ahead and stormy weathers on the horizon. If that analogy holds true when a CEO sells, then Palantir shareholders should be concerned.

CEO Karp has sold approximately 40 million shares over just three months, a figure that totals more than $1.9 billion in proceeds. Now that’s not all bad because it’s part of a schedule sales plan that permits the sale of an additional 9 million shares through May 2025.

Nevertheless, this pattern of insider selling comes at a time when the ownership structure is shifting significantly, meaning that retail investors may be the last to arrive to the party. In addition, institutional ownership has increased through both index inclusion and active management decisions.

Strength Meets Limitation

Another point eagle-eyed investors should pay close attention to is that Palantir’s core business presents a paradox of success because the company has achieved profitability on a GAAP basis and maintains strong government contracts through its Gotham platform, but also faces natural limitations in its addressable market.

Palantir’s government business, while lucrative, is constrained by national security considerations that limit its potential customer base to the U.S. and allied governments. At the same time, the fast-growing commercial sector presents a story that has won over investors and equally intensifying competition.

That combination means Jefferies’ analysis paints a sobering picture of Palantir’s future prospects, setting a price target of $28 per share – nearly 60% below current levels.

This dramatic downside projection stems not from any fundamental flaw in Palantir’s business model but from what analysts describe as an “unsustainable multiple.”

If Palantir joins the Nasdaq 100 it might provide some short-term support, but these are merely technical factors that are unlikely to match the impact of its recent S&P 500 inclusion.

Looking to the future, investors have to keep an eye on rising interest rates too that traditionally pressure high-multiple stocks, and the AI sector shows signs of selective valuation compression.

Even as Palantir rides the tailwinds of AI and data analytics, the current valuation appears to price in perfection at a time when market conditions are far from perfect.

So, What Should You Do?

For those who believe in the Palantir bull thesis, one possibility rather than completely exiting is to proceed with a measured approach of trimming positions to lock in gains while maintaining some exposure.

Trailing stops are a good way to protect any accumulated profits from owning PLTR while still maintaining exposure if the stock continues higher. 

It can’t be overstated that Palantir is trading at a 309x price-to-earnings multiple so it’s extremely stretched by any standard benchmark measure.

Looking Ahead

The story of Palantir in 2024 is one of success that has perhaps run too far, too fast. While the company’s technological capabilities in AI and importance remain virtually unparalleled, the valuation suggests expectations have outpaced reality.

As history repeatedly shows, even the strongest companies can see their stocks decline substantially when valuations become disconnected from fundamentals so it’s a case of buyer beware right now.

For investors who have profited from Palantir’s remarkable run, the current moment may well represent an opportunity to practice one of investing’s hardest lessons: knowing when to take profits. While the company’s long-term future may remain bright, the near-term risk-reward proposition appears to have shifted decisively toward risk.

That would explain away why so many billionaires are unraveling their stakes. So, why did Israel Englander sell Palantir stock? Israel Englander sold 90% of his stake in Palantir most likely because valuation multiples have become extremely stretched and suggest a correction is overdue.

That view is shared among the 16 analysts covering the stock who have a price target of $37.16 per share on it, representing material downside risk from present levels.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.