Palantir's recent drop: Minor retracement or red flag?

Palantir Technologies (PLTR) has had an extraordinary year in 2024, with its stock delivering a staggering 270.87% year-to-date (YTD) gain. Often considered a darling of the data analytics and AI revolution, the company has consistently outpaced major players, even leaving Nvidia in its wake. But after months of relentless upward momentum, Monday’s sharp decline has left investors wondering: is this just a minor retracement, or a potential red flag for the stock’s future?

A stellar year marred by sudden volatility

Palantir has ridden a wave of optimism, fueled by strong quarterly performances and increasing institutional interest. With hedge funds and major institutions like the Swiss National Bank ramping up their stakes, confidence in Palantir’s future seemed unshakable. However, the stock took an unexpected hit in Monday’s session, mostly erasing its 11% rally from the November 15 session and falling over 7% in 24 hours. 

At one point, shares plunged by 10%, dipping below $60 before recovering slightly to close at $60.99. This sharp sell-off has come as a surprise to many, given Palantir’s robust market position and growing appeal among institutional investors. It begs the question: what triggered the sudden dip?

At the heart of this retracement lies a now-deleted X post by Palantir board member and 8VC partner Alex Moore. In a message that sparked backlash, Moore claimed that the company’s recently announced decision to shift its listing from the New York Stock Exchange (NYSE) to the Nasdaq would “force billions in ETF buying.” He went on to state that “everything we do is to reward and support our retail diamondhands following.”

Source: X

While Palantir’s move to Nasdaq, effective November 26, is expected to drive significant capital inflows—likely leading to its inclusion in the Nasdaq-100 Index—Moore’s casual, meme-heavy tone raised concerns. The use of slang like “tendies,” a term popular in stock market meme culture referring to profits, added to the unease. 

Critics questioned whether such communication was appropriate for a company primarily dealing with government and military contracts. The incident has also renewed scrutiny over Palantir’s governance and corporate priorities.

A minor pullback or early warning Sign?

Despite yesterday’s turbulence, Palantir has shown signs of stabilisation, reclaiming the $60 support level after briefly dipping below it. 

Source: Google Finance

Some investors are brushing off the sell-off as a minor retracement in a stock that has already delivered exceptional gains this year. They argue that the fundamentals remain strong, with Palantir continuing to solidify its position as a leader in AI-driven analytics.

Others, however, see the decline as a potential warning sign. With the stock trading at a forward price-to-earnings (P/E) ratio of 144, questions about overvaluation are hard to ignore. While Palantir’s growth story is compelling, the sky-high valuation leaves little room for error. Critics worry that the stock may already be pricing in significant future growth, making it vulnerable to any missteps or unmet expectations.

Adding to the uncertainty is insider selling by CEO Alex Karp, who offloaded 6.32 million shares worth $398 million on November 13. Although the sale was pre-planned under a 10b5-1 trading plan, it has fueled speculation about whether the stock is nearing its peak. Karp still holds over 107 million shares, but the timing of the sale has not gone unnoticed by wary investors.

Technical analysis: What lies ahead for Palantir?

Is this just a temporary pause in an otherwise stellar year, or a harbinger of more significant issues to come? The answer may hinge on how Palantir navigates its transition to Nasdaq and whether it can continue to deliver results that justify its lofty valuation. 

At the time of writing, the stock is seeing a rebound and is back above the $60 mark, with upward pressure still evident. However, the RSI is still deep in the overbought territory and with the price edging back towards the upper Bollinger band, the chart hints at a possible slow down.

Buyers could face a hurdle at the $64.84 mark with a further move upwards potentially holding at the $66 mark. On the downside, a slump could hold at the $61.30 and the $58.35 price levels.

Source: Deriv MT5

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The performance figures quoted refer to the past, and past performance is not a guarantee of future performance or a reliable guide to future performance.

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