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This Billionaire Investor Has Owned Palantir Since Its IPO. He Just Dumped Nearly His Entire Stake.
Palantir Technologies (NYSE: PLTR) has been one of the top stocks of the artificial intelligence (AI) era. Shares of the cloud software company best known for its data analytics and AI platforms are trading up 275% year to date, the best-performing stock on the S&P 500 this year after Vistra, an unregulated utility that's seen its stock soar as investors anticipate an AI-driven spike in demand for power.
Palantir stock's growth occurred after the company reported accelerating revenue growth and expanding margin in every quarter this year. That growth can be attributed to its AI platform catching on with commercial customers and to the continued expansion of its government contracts, which is where Palantir first got its start.
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Not every investor is sold on its continued growth, partly because the stock's surge this year has given it a sky-high valuation. Palantir now trades at a price-to-sales ratio (P/S) of 58.5, which is exponentially higher than the 2.9 P/S ratio of the average stock in the S&P 500. Palantir is profitable on a generally accepted accounting principles (GAAP) basis, and now trades at a P/E of 183, based on adjusted earnings. The average P/E ratio of the S&P 500 is 28.
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Millennium Management throws in the towel on Palantir
One top investor that apparently turned skeptical of Palantir is billionaire Israel Englander and his Millennium Management hedge fund. Englander had been a longtime investor in Palantir, buying the stock at its initial public offering (IPO) back in September 2020. He dumped nearly all his stake in Palantir in 2024's third quarter as the stock continued to reach new highs (it has climbed since then as well). Millennium Management sold 4,492,425 shares of Palantir in the quarter, leaving it with just 480,883 shares. These would be worth roughly $30 million as of Nov. 25.
Englander is known for a long-short investment strategy that pairs bets for some stocks to go up with bets that some stocks will go down. While he's not shorting Palantir, the large sale seems to indicate that he thinks it's now overvalued.
He's also known for lower-risk investment strategies, like merger arbitrage. This means buying stock in a company that's agreed to be acquired, but the stock isn't quite selling for the acquisition price. Recently, Warren Buffett made a tidy profit on Activision Blizzard stock using this strategy when Microsoft's acquisition efforts were delayed in the courts.
Englander was an early bull in Palantir, investing at the time of its IPO, which indicates he knows the company well. However, there's also good reason he may be wary of its valuation.
Palantir stock has soared since the end of the third quarter, jumping 74% since then, thanks, in part, to a strong third-quarter earnings report and the company's decision to move to the Nasdaq stock exchange. There, the company expects to be included in the Nasdaq-100 index, which will trigger ETFs that track the stock like Invesco QQQ Trust to buy shares.
By selling Palantir in the third quarter, it seems like Englander was premature in his decision, but that doesn't mean he's wrong.
Is it time to sell Palantir?
What's been most impressive about Palantir's recent bull run is that the momentum in the business keeps building. Revenue growth has accelerated for at least five quarters, and operating margin has also expanded, as the chart below shows.
As you can see, the boom in Palantir stock has directly correlated with the improving fundamentals for the business, which is a positive sign. The company has seen impressive growth in the U.S. commercial segment, which posted 54% year-over-year revenue growth in Q3 to $179 million.
While that momentum is impressive, Palantir now seems priced for those results to improve forever. Margins could continue to expand as the business scales up, but revenue growth is likely to plateau in the next few quarters as comparisons get more difficult.
Palantir's business is clearly executing on its expansion efforts and building momentum, but at this point, the stock's valuation should put the brakes on its upside potential. Additionally, if its quarterly results disappoint, the stock could easily plunge.
Based on Palantir's surge in the fourth quarter, Englander was premature to sell the stock. However, taking some profits in the company makes sense right now.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Palantir Technologies. The Motley Fool recommends Nasdaq and 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.
