Investing

Cramer Calls Palantir (PLTR) A "Meme Stock" - Is it the Next Gamestop?

Rich Duprey

Published: November 27, 2024 9:14 am

Without question, CNBC’s “Mad Money” host Jim Cramer is an entertaining showman and analyst. He’s very popular with many investors and often displays passion with many of his stock picks. And on some occasions, he’s even right about them. 

While he’s smart and funny, Cramer is often just as strikingly wrong in picking winners and losers. There was once even an exchange-traded fund called the Inverse Cramer ETF that did the exact opposite of Cramer’s picks (it closed down earlier this year because it never really caught on), though there is still an unrelated Inverse Cramer account on X.

Recently, though, the stock commentator raised eyebrows when he discussed Palantir Technologies (NASDAQ:PLTR), the data analytics company that other analysts consider to be one of the best pure play AI stocks. Cramer told his audience:

“Palantir Technologies is a cold stock. It is a meme stock. It is a stock that has momentum because individual investors keep piling into it. It is not really even a stock; it is just a barometer of enthusiasm for some business that may or may not be doing well. I wish there were more to it.”

24/7 Wall St. Insights:

• AI data analytics firm Palantir Technologies (PLTR) is seen by some as the premier AI stock, but CNBC host Jim Cramer calls it little more than a meme stock.
• After trading sideways for sometime, PLTR stock has rocketed higher, more than doubling in value over the last three months.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

Meme stocks, of course, are typically stocks that don’t have a lot going for them, but still have significant small, retail investor support online. They’re talked about in internet chatrooms and discussion boards on places like Reddit, and during their heyday they created millionaires from traders betting against conventional wisdom.

The biggest meme stocks remain GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC), but at times included a broad swath of well-known companies including Bed Bath & Beyond before its bankruptcy, Chewy (NASDAQ:CHWY), and even Tesla (NASDAQ:TSLA).

We haven’t heard much about meme stocks since the summer when GameStop was briefly resurrected, but is Cramer right about Palantir? Is it little more than the glorified video game retailer?

Riding the AI wave into orbit

Palantir Technologies has ridden the artificial intelligence wave for all it is worth. What started as a number crunching outfit launched with investment money from the Central Intelligence Agency and other three-letter spy shops, has transformed into a premiere AI business helping enterprise-class companies analyze and understand the trillions of data points they create on their customers, logistics, and inventory into actionable news.

The stock went public in 2020 at $10 a share but today trades at $65 a stub. It’s a 590% gain during a time the S&P 500 only returned 78% for investors. That’s a compounded annual growth rate (CAGR) of nearly 60%. In just the last three months shares have more than doubled.

Yet PLTR stock trades at 330 times earnings, 56 times sales, and more than 150 times the free cash flow it produces. Those sort of nosebleed valuations suggest Palantir is riding an AI bubble.

Although the public sector is still where most of Palantir’s revenue comes from, government contracts tend to be lumpy and unpredictable. The commercial sector is the more natural outlet for Palantir’s deep analysis capabilities.

AI still has a long growth runway ahead of it, though we may see businesses begin looking for the payoff and cost-savings that have been promised. Spending on the technology may slow, which could cause Palantir’s valuations to return to earthly dimensions.

An AI pure play or just a meme stock?

While the data analytics stock continues to grow its customer count — up 39% in the third quarter — it had just 321 U.S. commercial clients generating $179 million in revenue. And though its revenue is growing smartly, the rate of growth is slowing. It nearly doubled over the first two years of its public existence, but at just half that rate over the past two years.

This isn’t to say Palantir is a bad company and won’t continue to expand. It just means its valuation has gotten far ahead of its business. It also doesn’t mean PLTR is a meme stock either, so you may want to go with the inverse Cramer crowd on this one.