Easily one of the top-performing publicly traded enterprises this year, big data analytics specialist Palantir Technologies Inc. (NASDAQ:PLTR) continues to climb a wall of worries, despite growing anxieties regarding a brewing bubble in artificial intelligence. Since the start of the year, PLTR stock has gained more than 140%, undoubtedly putting a smile on long-term stakeholders' faces. However, not every detail is encouraging.
First, on the bullish side of the argument, PLTR stock has soared in large part due to the underlying company becoming the operating system for enterprise AI. Fundamentally, many investors are relying on the premise that if AI deployments scale in the manner that cloud computing did, Palantir may become the default backbone for mission-critical workflows that utilize machine intelligence.
Specifically, Palantir's core enterprise software platform Foundry, combined with its large-language-model-connectivity platform, AIP, give enterprises a whole range of functionalities, including data integration, model orchestration, governance and deployment at scale. Since many, if not most enterprises struggle to build such capacities internally, Palantir may become the picks-and-shovels provider to enterprise AI.
Should this thesis materialize, the total addressable market may skyrocket. As such, the most optimistic analysts still see a sizable runway for PLTR stock, despite its already remarkable performance. It's also worth mentioning that, while Palantir has attracted its fair share of criticism, PLTR's short interest sits at only 2.36% of its float. As well, the underlying ratio is only one day to cover, which effectively implies ample liquidity for covering purposes.
Still, those who are believe in the upside narrative of PLTR stock must approach the story with caution. In particular, some of the critics — perhaps most notably Michael Burry of "The Big Short" fame — have placed real money on the line. Burry disclosed that he bought two-year puts against PLTR stock, which represent a directional, debit-based wager.
That's significant because, assuming that they're not part of a spread, straight puts require the underlying security to fall below a certain threshold to become profitable for the derivative contract holder.
Perhaps the biggest concern among naysayers is the valuation. Right now, PLTR stock trades at around 182 times forward earnings and over 118 times trailing-year sales. While fundamental ratios don't represent universal truth claims, they reveal how far PLTR has risen against established financial metrics. The concern, then, is that weak-handed investors may panic and exit out of their positions, thus creating a negative feedback loop.
The Direxion ETFs: With market participants on both sides of the table commanding sound arguments, financial services provider Direxion offers a pair of relevant, countervailing products. For optimistic traders, the Direxion Daily PLTR Bull 2X Shares (NASDAQ:PLTU) tracks 200% of the daily performance of PLTR stock. For pessimists, the Direxion Daily PLTR Bear 1X Shares (NASDAQ:PLTD) tracks 100% of the inverse performance of the namesake security.
In both cases, the primary selling point is convenience. Usually, traders who are interested in leveraged or inverse positions must engage the options market. However, certain derivative or synthetic strategies carry complexities which may not align with every investor's interest. In contrast, Direxion ETFs are straightforward, debit-based transactions, functioning very much like any other publicly traded security.
Still, familiarity of process does not imply absence of risk. For one thing, leveraged and inverse funds tend to be more volatile than standard vehicles tracking benchmark indices like the Nasdaq Composite. Second, Direxion ETFs carry nuanced risks, with illiquidity being a possible challenge. Finally, these funds are designed for exposure lasting no longer than one day. Going beyond this recommended period may expose investors to positional decay due to the daily compounding effect.
The PLTU ETF: Since the start of the year, the PLTU ETF has gained just a hair over 236%. In the past six months, the bull fund is up around 57%.
- From a daily timeframe, PLTU's price action appears to be struggling against the 50-day moving average, which is imposing upside resistance.
- Momentum has been strong in the trailing week, with PLTU gaining over 14%. However, volume levels have been declining, which is a key concern.
The PLTD ETF: Against the beginning of January, the PLTD ETF has lost nearly 72% of unit value. In the trailing six months, it's down 33%.
- As one might imagine, the overall trend has been poor, with PLTD's price action sitting well below the 50 DMA.
- What's intriguing is that, over the past few months, accumulative volume has been rising, indicating brewing interest in the bearish trade.
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