The investment community was caught off guard this week by a severe downturn in Palantir shares, a selloff made all the more perplexing by the company’s recent announcement of its strongest quarterly performance on record. Instead of celebrating the data analytics firm’s operational success, shareholders endured five consecutive days of sharp declines, creating a stark contrast between business results and market performance.
A Market Rotation and a Short Attack
This downturn appears to be part of a broader shift in investor sentiment away from high-valuation technology stocks, with Palantir emerging as a primary casualty. The immediate catalyst for the selling pressure, however, was a scathing report from short-seller Citron Research. The firm launched a direct assault on Palantir’s valuation, branding it as fundamentally overpriced and trading far beyond its fair value.
In a particularly provocative move, Citron drew comparisons to AI icon OpenAI. Applying what it deemed similar valuation metrics, the short-seller argued that Palantir’s stock should be trading near $40 per share—a fraction of its recent peaks. This critique was compounded by investor unease over substantial stock sales executed by CEO Alex Karp throughout the previous two years, further eroding market confidence.
Should investors sell immediately? Or is it worth buying Palantir?
Operational Excellence Meets Investor Skepticism
The irony of the situation lies in Palantir’s outstanding operational achievements. The company recently celebrated a landmark milestone by posting its first-ever billion-dollar quarter, handily surpassing analyst expectations. Management responded to this strength by raising its full-year guidance, fueled by explosive growth within its U.S. commercial business segment.
The company’s commercial momentum is undeniable, with Palantir securing a record number of multi-million-dollar contracts and booking its highest contract volume in history. Despite this flood of positive fundamental news, the market has chosen to focus exclusively on valuation concerns, creating a scenario where excellent business results are being completely overshadowed by fears over price.
The reaction has been severe. Following an initial drop of over 9% on Tuesday, the decline continued relentlessly, erasing a significant portion of the stock’s impressive gains for the year.
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