Warnings issued about a potential collapse in Palantir's stock price, with predictions of a possible 55% decline in the near future.
In a recent development, investment bank Jefferies has issued a warning to investors regarding Palantir Technologies (PLTR), a company known for offering big data solutions and cybersecurity solutions, with a potential crash risk of the stock due to the upcoming Russell 1000 index reconstitution.
Palantir's substantial surge of over 460% in the past year is expected to move the company into the top 200 large-cap names in the Russell 1000, causing it to be removed from the Russell midcap growth index. This shift is likely to result in significant selling pressure from passive managers who need to rebalance their portfolios in accordance with the new index weightings.
Jefferies strategist Steven DeSanctis anticipates this could trigger an 11.1% drop in the technology sector weighting for the Russell midcap growth index due to the forced selling of Palantir shares by funds benchmarked to Russell indexes, which track around $10.6 trillion in assets.
This rebalancing phenomenon is known to create heightened trading volumes and short-term price volatility as index funds and passive investors adjust their holdings. Last year’s reconstitution saw nearly 2.9 billion shares worth $95 billion traded in under a second, and this year may see as much as $150 billion in net trades, magnifying the potential for a sharp price correction.
Despite these concerns, Palantir’s fundamentals remain strong, with rapid growth in commercial contracts and robust government revenue, plus the launch of an AI platform fueling demand. However, the valuation is highly stretched, trading at more than 200 times earnings and over 100 times sales, which adds to the risk if a significant sell-off occurs during the reconstitution.
The concern over Palantir's stock price increase is further compounded by the increasing frequency of insider sales, particularly by CEO Alex Karp, who has sold nearly 40 million PLTR shares for over $1.9 billion in the last three months. Karp has a Rule 10b5-1 trading plan that allows for the sale of another ~9 million shares by May 2025.
Jefferies rates Palantir Technologies as "Underperform" with a price target of $28, and analysts are warning that investors might consider selling their Palantir shares quickly. If the price target is reached, it would correspond to a potential crash of around 55 percent for Palantir Technologies.
It is important to note that the index-derived price of the financial instruments for Palantir Technologies has been used in this article. Börsenmedien AG, the developer and owner of the index for Palantir Technologies, has a cooperation agreement with the issuer, from which it receives remuneration.
Despite the warnings, the demand for Palantir's "Artificial Intelligence Platform", introduced last year, remains high. Investors are advised to carefully consider the risks and make informed decisions based on their individual investment strategies.
Investors should be cautious about Palantir Technologies (PLTR) due to the upcoming Russell 1000 index reconstitution, as Jefferies strategist Steven DeSanctis predicts this event could lead to an 11.1% drop in the technology sector weighting for the Russell midcap growth index, potentially causing significant selling pressure and heightened trading volumes. Additionally, Palantir's high valuation, combined with the increasing frequency of insider sales by CEO Alex Karp, adds to the risk of a sharp price correction.
