Palantir (PLTR) trades at 552 times trailing earnings and 175 times forward earnings. Bank of America has set a price target of $255.
Michael Burry bought $9.2 million in Palantir put options at a $50 strike price expiring in 2027.
Palantir maintains a free cash flow margin of 50%, with full-year FCF estimated at $2.1 billion.
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Michael Burry battled the bulls on Wall Street, particularly in terms of Palantir (NASDAQ:PLTR). The bulls have gained a lot so far and the price targets have become even bolder. On the other hand, most analysts are sitting on the fence with a “Hold” rating, with three analysts having a “Sell” rating on the stock. There are four “Strong Buy” ratings, with the highest price target at $255, from Bank of America (NYSE:BAC).
Burry believes PLTR stock could be on the verge of implosion, with his bearish thesis focusing on the stock’s skyrocketing valuation. PLTR shares are trading at 156 times trailing sales and 552 times trailing earnings. It still trades at 175 times next year’s expected earnings, which is an unprecedented valuation that no other tech stock has seen since the Dot Com era.
This may be old news by now, but it deserves a refresher before we get to the meat.
Burry holds options for about 5 million Palantir shares, with a notional value of about $912 million. This is the largest bear bet in his portfolio and represents 66% of his reported holdings. The actual amount involved is much less. Burry himself posted on X that he spent $9.2 million buying 50,000 put options on Palantir.
These options expire in 2027 at an exercise price of $50. Burry is betting that PLTR stock will fall well below $50, allowing him to sell higher at the strike price when it expires.
Regardless, that’s a drop in the bucket compared to Burry’s spending power. The notional amount led to dramatic headlines and drew comments from Palantir CEO Alex Karp, who called Burry “crazy” during an interview.
The bulls’ argument is essentially that Palantir is a great company that deserves a great valuation. Has been able to grow significantly after getting his foot in the door at any company/agency. What really makes this growth special is that the company has a free cash flow margin of nearly 50%. For a company believed to be early in its growth cycle, Palantir is truly exceptional.
The management steered the wheel austerely and worked wonders. Karp said Palantir will cut even more employees as the company sees revenue growth accelerate. This is possible because Palantir produces software and then automates the maintenance of its own software through Palantir Apollo. In turn, the companies or agencies that use his software turn into very high-margin, low-loss customers.
Free cash flow for the full year is estimated at $2.1 billion. This is most likely an understatement, as Palantir tends to lower its guidance to keep expectations low.
If we take the higher estimate of $7.39 billion in 2026 revenue and assume a 50% FCF margin, PLTR stock is trading at ~120x forward FCF today. This makes the stock valuation more supportive, but it is undeniably expensive.
Burry has made valid claims, but has amassed a history of failed attempts to repeat his Great Recession victories. With Palantir, he may be proven right if the AI rally ends prematurely, but PLTR stock falling below $50 by 2027 is not something I would bet on.
That’s a valuation of $119.24 billion in January 2027, or about 28 times estimated 2027 FCF.
Chances are Palantir will likely disappoint on growth or profits sometime in the near future, and the stock could pull back temporarily in response. That said, PLTR stock trading at such a low valuation is highly unlikely a year from now. Many bears will start reaching for their wallets if PLTR stock drops below $100.
Only a catastrophic recession could do that, and you’d have bigger things to worry about.
Despite everything, I’d actually follow Burry if you’re a bear. It is not known how long this rally will continue. So keep the vast majority of your portfolio in safe assets like Treasuries and bet only a small portion on stocks like PLTR. Burry is worth hundreds of millions and only spent $9.2 million on his PLTR sales contracts.
If you are a bull, I would stay away from blindly following the rally and put a hard cap of ~10% of a portfolio on a stock like PLTR. I haven’t seen anything like Palantir, but in terms of valuation, the only “precedent” was the Dot Com bubble.
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