Investing
Cramer Calls Palantir (PLTR) A "Meme Stock" - Is it the Next GameStop?
Published:
Jim Cramer is among the most notable talking heads in the financial media. The former hedge fund manager and now CNBC personality has very opinionated takes on a wide range of stocks, with a number of segments on CNBC that promote rather stark views on popular companies that can certainly drive varied opinions on his particular takes.
Thus, when Cramer recently called Palantir Technologies (NYSE:PLTR) a “meme stock” due to the intense amount of shareholder interest in the name, some investors perked up. There are a whole range of retail investors who believe that whichever company Jim Cramer blesses is doomed for failure, and a high-profile “inverse Cramer” ETF has been set up to allow retail investors to bet against his picks. But I digress.
I do think Mr. Cramer is on to something when it comes to Palantir. The company is a quasi-meme stock in terms of the sheer amount of interest around this particular tech company. Palantir is undoubtedly an AI beneficiary, and has turned into a darling in this group, achieving a sky-high valuation that some believe is far too overdone. Hence, the divisiveness around this particular stock.
Let’s dive into what to make of Cramer’s call, and if Palantir could be the next GameStop (NYSE:GME).
When Jim Cramer labeled Palantir a meme stock in September, many retail investors immediately took to social media to denounce this view. Indeed, retail investors appear to have been correct on the whole, with PLTR stock more than doubling over this time frame. At least for now, this call appears to have been directionally incorrect.
Of course, Palantir has continued to impress with outsized revenue and earnings growth, turning this company from an overvalued hype stock with an incredibly high price-sales multiple to a company with a forward price-earnings multiple of 144-times.
Yes, that’s expensive. But it’s important to remember that for many years this is a company that hasn’t produced a profit. Accordingly, investors are clearly pricing in much higher growth than analysts project right now, and if that is the case, perhaps this multiple is warranted.
Indeed, even Cramer also highlighted Palantir’s potential, predicting strong performance despite valuation concerns. He praised Palantir’s role in cybersecurity and its disruption of Pentagon procurement, and has acknowledged that the company’s platform is gaining traction across defense, healthcare, and finance sectors. So, perhaps Cramer is opening the door to the possibility he could be wrong. We’ll see.
Analysts predict Palantir’s EPS will rise from $0.21 in 2023 to $0.31 by 2025, amounting to a 48% increase. This is a notable increase, and one that the market is clearly more than pricing in given Palantir’s current price-earnings multiple. The idea many retail investors appear to have is that Palantir could provide much higher-than-expected growth as its AI platform gains attention from the corporate world, and a spending race could propel corporate clientele growth the likes of which Palantir hasn’t seen.
The company’s solid base of government contracts could be less stable than in previous years, with a new administration focused on cutting costs likely to review every existing contract on the market. But the fact that Palantir has pivoted toward a more commercial-heavy model could bode well for the company in its goal of becoming a platform of choice for more than just counter-terrorism agencies of the U.S. government.
There are mixed reviews of the company on Wall Street, with analysts at Argus downgrading Palantir stock to hold and Jefferies to underperform, citing the company’s high trading multiple and insider stock sales as key risks.
So, investors will have to keep a close eye on this name, and continue to pay close attention to the company’s upcoming earnings reports for clues on who is ultimately right.
When a company needs a boost, there have been a couple go-to ways many boards of publicly-traded companies have done so – stock splits and new listings.
Palantir has gone the latter rout, recently announcing a Nasdaq listing and seeing its share price surge 11% on the news. Impressively, news of this announcement alone boosted the company’s market cap to $150 billion, and positioned the company as a clear AI beneficiary investors can now buy on multiple exchanges.
While additional exchange listings don’t do anything to affect a company’s underlying fundamentals, it does increase liquidity of given stocks. And as the company’s board has pointed out to investors, the move could benefit retail investors by driving ETF purchases. The theory is that the more buying pressure there is, the higher the stock price (generally). That’s good for investors.
Of course, an 11% intraday move is quite large, and there are other key drivers investors are pricing in here. The company’s better-than-expected earnings, in which Palantir provided 40% government revenues growth and commercial growth of 54% were the key drivers of upside in the stock aside from the listing. That said, it’s clear that Palantir wants to keep the party going, and investors are keen to oblige. Until that changes, this is a stock that has serious momentum right now.
I think there’s certainly an argument that can be made that Palantir exhibits many of the elements of a meme stock right now. The big data and AI beneficiary has seen its valuation explode, to a price-sales multiple of more than 60-times. I’m not going to pretend that’s sustainable – Palantir is going to have to show incredible top and bottom line growth, in addition to major margin expansion, to see the company grow into this multiple.
But with the company increasing its customer base by 39% and securing more than 100 deals worth more than $1 million, this is a company with a more broadly diversified revenue stream that should trade at a higher multiple. The question is what multiple makes sense – and that’s what the market is trying to determine right now.
I think Jim Cramer is right, and Palantir is a meme stock. We’ll have to see if that means this company will trade like a GameStop or an Nvidia from here. Time will tell.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.