Palantir stock is sitting at a crucial support level that may determine its forward trajectory. It is trading at $126.90 today, June 18, down modestly from this month’s high of $162. So, will the stock continue its bearish trajectory or stage a comeback?
Reasons why the Palantir stock has slumped
There are three main reasons why Palantir shares have slumped by nearly 40% from their all-time highs. First, the retreat has coincided with the ongoing performance of other software companies.
A closer look at the top S&P 500 Index components shows that software firms like Atlassian, Adobe, and Workday are among the top laggards this year, with investors being concerned about disruption by artificial intelligence (AI) tools.
Second, the decline is mostly because of the ongoing valuation reset since Palantir is still one of the most overvalued companies in the US. Data compiled by SeekingAlpha shows that it has a forward price-to-earnings ratio of 146 on a GAAP basis and 88 on a non-GAAP basis.
These numbers are much higher than the broader stock market since the S&P 500 Index has a multiple of 23. It is common for highly valued companies to retreat as this valuation reset happens.
Third, the stock is falling because of profit-taking among investors since it was one of the best performing companies in Wall Street last year. It soared by over 3,000% from its lowest level in 2023 to its all-time high.
Palantir’s fundamentals are still strong
The ongoing Palantir stock retreat does not imply that it is a bad person. Far from it, financial reports have shown that its products are strong and that it is still seeing strong demand from companies and the government. For example, it is one of the companies taking part in Donald Trump’s Golden Dome project.
The results revealed that its US commercial revenue jumped by 133% in Q1 to $595 million, while its government figure rose by 84% to $687 million. If this trend continues, the commercial revenue will surpass the government figure soon.
Its total revenue jumped by 85% YoY during the quarter, and analysts believe that it has more room to go. The average estimate is that its revenue will jump by 72% this year to $7.72 billion, followed by $11.2 billion next year. If this trend continues, it will hit the $20 billion milestone by 2030.
Most notably, its business is seeing strong profits. Its profit in the first quarter rose to over $870 million, giving it a net profit margin of 43%.
PLTR stock price technical analysis
Palantir stock chart | Source: TradingView
The daily chart shows that the Palantir share price has slumped in the past few days, moving from a high of $162.35 on June 1 to the current $126. It has moved slightly below the key support level of $128.70, the lower side of the horizontal channel.
It has also dropped below the 50-day moving average. Also, the two lines of the MACD indicator have moved below the zero line and are pointing downwards.
Therefore, there is a risk that the stock will continue the downward trend as some holders start to capitulate. If this happens, it may drop to the key support level of $120.
READ MORE: Palantir stock: Wyckoff Theory points to a dive to $100 after earnings
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