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Palantir (PLTR) reported strong Q3 earnings and raised Q4 guidance, but shares dropped over 4% after hours.
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Palantir’s stock decline following positive results suggests its high valuation already priced in the beat.
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Rigetti Computing (RGTI) has a $12.7B market cap and plans to unveil a 100-qubit quantum system soon.
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Palantir (NASDAQ:PLTR) just clocked in an incredibly strong quarterly earnings result. And to top it off, the AI titan boosted its Q4 guidance, which seems to signal that AI adoption is doing just fine. Undoubtedly, it wasn’t just a solid quarter; it was an applause-worthy one, and one that I think investors should give a closer look, especially given the negative post-earnings reaction in the name.
Despite doing everything right for Q3, shares dipped more than 4% in the after-hours. It’s a confusing post-earnings reaction on the surface, but when you consider the sky-high valuation and the momentum behind the name, it makes sense that anything short of a shocking blowout wouldn’t be able to do it. Just how much of the big beat was already baked in remains the big question.
Either way, I think a good argument could be made that Palantir did deliver a blowout of sorts, with revenue and earnings per share numbers blasting off. The AI segment, in particular, was a strong point, and with very little to nitpick, some new investors may find it strange that shares are selling off in response. As the Palantir trade heads south, perhaps the stock has run up enough that further gains will be harder to come by. And for gain seekers, perhaps quantum stocks might be more exciting ahead of earnings instead of Palantir after a great but not good enough number.
Palantir stock sags after wonderful results. What’s going on?
Perhaps an even bigger blowout would have been met with profit-taking since it is that time of year again, when it’s time to get in ahead of the traders looking to do a bit of year-end tax loss selling. And with huge gains already in the books, selling after a mild blowout (if you can even call it that) doesn’t seem like all too bad an idea. Of course, even after a 4% drop, shares are still nowhere near cheap, even given the nice forecast raise. And, of course, if an AI bubble does end with a burst, Palantir is one of the names that could be most at risk.
Furthermore, even a mild correction in broad markets would probably cause some to panic with the belief that the AI bubble has just begun. Undoubtedly, the stakes are high, as is the valuation, and if a broad market correction is enough to power an even worse decline, perhaps it’s prudent to do a bit of profit-taking with the intent of returning at some point in the future, perhaps when the panic really has had a chance to set in.
If such a great quarter can induce selling, I fear for what kind of selling the stock would be hit with if there were a big miss. Indeed, I find it unrealistic to assume a firm can keep topping estimates, let alone keep smashing them consistently, especially as analysts raise the bar on their upbeat expectations over the AI revolution.
Quantum stocks might be more intriguing as a growth trade
In any case, it’s not hard to imagine that growth-seeking traders are thinking about trading out of Palantir stock and into a theme that has more explosiveness. The quantum computing trade has been extremely volatile, but with a name like Rigetti Computing (NASDAQ:RGTI) boasting a mere $12.7 billion market cap, there’s room to run, especially if the latest dip in the quantum computing stocks proves unwarranted as the quantum pure-plays leap into earnings.
Now, don’t get me wrong, expectations are sky-high when it comes to the quantum stocks. However, the quantum revolution might be around the corner if there is, in fact, an inflection point that’s close for the field. With Rigetti taking a hit after an untimely downgrade ahead of earnings, the bar has been lowered a bit.
For now, it’s unclear if Rigetti’s take on quantum and its 100-qubit system (due to be unveiled soon) will make Rigetti Computing the quantum play to go with.
Either way, betting on the broad basket of pure-plays might make sense, especially after recent volatility, which is par the course when it comes to such high-flyers looking to dominate in the nascent market. Between Palantir after earnings and quantum plays ahead of earnings, I have to go with the latter. Though, I do acknowledge the heightened risk profile of both names at this highly uncertain time, especially if an AI bubble becomes a self-fulfilling prophecy.
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