In late pre-market trade the stock is down $2.28 at $171.75.
From The Economist, August 12:
What would make it worth buying?
For a few days in March 2000, as the dotcom bubble neared bursting point, Cisco
was the world’s most valuable company. Now the seller of networking gear
is a cautionary tale, even if it is also an enduring success, with real
earnings per share of four and a half times what they were back then.
Investors became so exuberant about the firm’s prospects 25 years ago
that they valued it at more than 200 times its annual profit, around
$1trn in today’s money. Starting from a valuation that stratospheric,
Cisco’s solid-but-unspectacular growth was a bitter disappointment. Its
market value is now $280bn.
No one can accuse Palantir,
a data-analysis outfit and the most searingly hot stock of 2025, of
unspectacular growth. It reported revenue of $1bn for the second quarter
of this year, 48% higher than for the second quarter of 2024 and
quadruple the figure for the same period in 2020. Silicon Valley types
seek out companies satisfying the “rule of 40”, meaning that the sum of
their operating margin and year-on-year sales growth, both expressed in
percentage points, is higher than 40. Palantir’s score on that measure
is 94: higher than any other enterprise-software firm with equivalent or
greater sales. Among the world’s 25 biggest companies by market
value—of which Palantir is one—only Nvidia, with its near-monopoly on
artificial-intelligence chips, scores higher.
Any investor
would want a piece of that. The trouble is that Palantir’s market value
has already soared to $430bn (see chart 1), more than 600 times its
past year’s earnings and nearly triple the equivalent multiple for Cisco
(or, indeed, Nvidia) at its peak. Software firms often prefer to
express their valuation in terms of underlying sales, which puts
Palantir’s multiple at around 120. For comparison, in 2005, the year
before the Oxford English Dictionary added the verb “Google”, Google’s
price-to-sales ratio peaked at 22.
You
need not look far to explain why Adam Parker of Trivariate Research, an
investment firm, has published a note entitled “Could Palantir be the
best short idea?” Writing in late May, he examined the ratio of
enterprise value (which adjusts market value to account for debt and
cash on the balance-sheet) to forecast sales for the coming year. On
this measure Palantir then scored 73 and now scores 104. Mr Parker
looked for other listed companies that had hit a multiple of 70 since
2000. Excluding financial firms and those with annual revenue of less
than $50m, he found 14, the largest of which has a market value around a
quarter of Palantir’s. That was Strategy (formerly MicroStrategy), a
firm that sells some software but pitches itself to investors as a
“bitcoin treasury company”, with a value derived from its cryptocurrency
holdings rather than its sales.
Mr Parker
also looked at the shareholder returns such companies have generated. He
first lowered the bar to an enterprise-value-to-sales ratio of 30,
since so few firms have ever hit Palantir’s heights. He then measured
their subsequent returns after first hitting this level, relative to the
S&P 500 index (see chart 2). A year
after its multiple first hit 30, the median firm had underperformed the
index by 22% and seen its multiple contract to 18.
What,
then, would it take to make Palantir’s shares worth buying? The firm
helps everyone from spooks to fast-food chains analyse their data better
and thereby improve their operations. Its blistering recent growth
comes, in large part, from enthusiasm over adopting AI
for such purposes. Palantir’s competitive advantage derives not just
from its software and clever engineers, but from a high-level security
clearance allowing it to process classified information from America’s
defence and intelligence agencies. This gives it a “moat” with which to
fend off competitors.....
....MUCH MORE
Here's the six-month chart from TradingView showing the all-time high ($190.00) and the gap-up:
