The artificial intelligence (AI) revolution is making big winners of several semiconductor companies. However, there is one software firm with a nice lead integrating generative AI into its platform and achieving tangible business outcomes: Palantir (NYSE: PLTR).
AI has been driving accelerating growth for Palantir's Artificial Intelligence Platform, or AIP, especially in its commercial business. As a result, Palantir's stock is up 150% on the year and now hovers around new all-time highs.
However, with its valuation ballooning, a prominent billionaire and major hedge fund are now taking their chips off the table. Is this a danger sign for this high-flying stock?
Founder Peter Thiel cashes out
One of Palantir's founders, venture capitalist Peter Thiel, recently sold about $1 billion in Palantir stock between May and Oct. 1. Back in May, Thiel adopted a 105b-1 plan to sell up to 28,590,737 shares before the end of the year. When the plan was adopted, that added up to roughly $1 billion.
Thiel's program began selling last month and finished up with the 28.6 million share sale on Oct. 1. So, he is done selling for the year. But should investors be worried that one of the company's founders is selling so much?
I wouldn't let Thiel's sales determine your outlook on Palantir. After all, even after these sales, Thiel still owns a huge amount of the company's stock. His investment vehicle that sold the shares, Rivendell 7 LLC, still owns 34.26 million shares.
Other Thiel-owned vehicles own another 37 million shares in addition to 32.5 million Class B shares that are financially equal to Class A shares but carry 10 votes per share. Thiel also controls over 335,000 out of just over 1 million Class F founder's shares. Those 1 million shares split between the company's three founders control 49.99% of the voting power of the company.
So, between all those holdings, Thiel still owns about 104 million shares worth about $4.4 billion today. Thus, Thiel's "big" sale only amounts to about 21.5% of his stake. That's not particularly drastic, given that the stock has rallied so much this year and that Thiel is also perpetually investing in new venture companies.
Image source: Getty Images.
Renaissance Technologies also trims its stake
In addition to Thiel, the hedge fund that sold the greatest number of Palantir shares in the second quarter, shedding 7.8 million shares, was the legendary Renaissance Technologies. Renaissance Technologies was founded by the late Jim Simons, who passed away in May 2024.
In the 1980s, Simons founded the company and its signature Medallion Fund, one of the first hedge funds to use vast troves of data to make trading decisions. Thus, it was one of the first "quant funds," which have gained popularity in recent years. Between 1988 and 2018, the fund compounded at a staggering 39.99% rate, net of fees, compared with the S&P 500 index's 10.7% return over that time.
So, should investors worry about Renaissance's big sale of Palantir stock? Probably not. Although the famous fund sold a lot of shares, it did so because it already had a big position. The second quarter's sales only amounted to 16.6% of its stake from the prior quarter. Even after the sale, Palantir was still Renaissance's second-largest holding, at 1.7% of the firm's highly diversified portfolio. Therefore, the sales look like mere profit-taking and portfolio rebalancing after a big run.
No reason for Palantir's shareholders to panic, but caution is warranted
While some very large and savvy investors have been selling Palantir stock, both Thiel and Renaissance continue to hold large positions in the name. The healthy trims jive with an optimistic long-term outlook for Palantir's business, but perhaps also an acknowledgment that its valuation has become full or even ahead of itself in the near term.
After all, Palantir's stock trades at over 100 times next year's earnings estimates and over 41 times current sales.
That is really, really expensive and poses risks to the stock should anything go wrong. However, with Palantir's recent results showing acceleration and us being in the early innings of the AI revolution, these big-name investors apparently think operating results will eventually grow into that valuation.
So, Palantir owners may want to trim as these big-name investors did. Though, if you are still a bull on the company's long-term business outlook, you may also want to retain a portion, as these investors are doing.
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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
