Transcription
Hey folks, this is Tom Nash.
On Friday, Palantir hit an all-time high of $66, which was absolutely insane. However, over the past few days, it has dropped significantly, actually dropping about 10% over the course of the past 24 hours. As of the making of this video, at least, it's down another 3% in pre-market.
Now, I don't know what's going to happen, and I don't think that following daily price action of stocks is anywhere close to being beneficial to your long-term investing journey. I always say that following the day-to-day price swings of stocks is pretty much the equivalent of trying to solve an algebra equation by chewing bubble gum. It's not very effective.
Now look, I know that a lot of people are concerned. A lot of people are asking what's going on with Palantir, why Palantir is down, and should we take profits. I promise you, in today's video, it's going to be all real talk. So don't click nothing, don't smash nothing, don't buy nothing—just listen.
Now look, I'm not a spokesperson for Palantir. I don't have to say anything, and if I see problems, I'm going to call them out, just like I did over the past few years. I'm not a paid spokesperson where I have to talk about Palantir only in a positive manner; I will always tell you the truth.
Now, the one thing I want to make clear in this video is that it's very hard for me to come on here and make up a reason why Palantir is down 10% over the past 24 hours. I know that CNBC and professional media outlets have to give you a reason, and investors are digesting whatever stuff they're going to make up that day. When I digest things, I go to the toilet.
Look, it’s just maybe people taking profits, maybe just a correction after the insane spike we've seen on Friday. It can be a million different things. In the short term, markets can be very irrational, and you don't have to find a reason for any irrational day-to-day swing in the stock price, especially a stock like Palantir, which is known to be volatile. I mean, is this your first day with this stock?
So let's talk about it. Look, Palantir is up 270% since January 1st of 2024. Let me say it again: it is up 270% year to date. Now it is up 44% in the past 30 days alone. Did you not think it was going to take a breather? Did you all just assume it's going to go in a straight line to the moon to the $500 price point I made up about a year ago? I'm just kidding; it's not made up. I promise you, bottom line: I still firmly stand behind that $500 price point. It's a joke that somebody's going to take out of context; they're going to post a clip and expose me. Go right ahead—see if I care.
Now look, real talk right now: Palantir is at a $140 billion market cap—$140 billion. Just for comparison, Snowflake is at $42 or $43 billion, and other massive companies like Lockheed Martin are pretty much in that neighborhood: $120 to $150 billion. So Palantir has gotten to the level of Lockheed Martin and Rockwell; it's massive. It is insane.
Now, it is also up about 750% since it went public in the direct public offering back in 2020. Now also, one point that people seem to completely miss is the fact that the institutional shareholding in Palantir, which was for me always the Achilles' heel of this stock, has gone up all the way from 35%, which is not that good for me just a couple of years ago, all the way to above 50% right now. So institutional shareholders are piling in, and the rest of the market is basically just pricing in the huge amount of upside this company has, and that creates a problem. Because over the course of the past four years, and I suspect over the course of the following four years, this stock is going to do the same thing: punish the short-term traders and really, really do well for long-term patient investors. It’s not going to change.
Now, I promise you the bottom line first, and I'm not going to ignore the fact that Palantir is currently trading at a 134 P/E. That is insane. Now, I totally understand why some people who took one class in business school think that just because a stock is trading at 130 P/E or forward P/E, that it is 100% overvalued. If a stock is at this price point, it is completely overvalued—no nuance, no shadow of a doubt.
And I think—and I'm going to pull it very mildly in this video because I don't want to offend anybody—but I think they don't know what the hell they're talking about. I think that actually what's happening is that they're missing the big picture.
Now look, I think that Palantir has a massive 10x upside, and if you're on this channel, odds are you kind of agree with me. I don't think anybody here watches me and completely disagrees with that thesis. But I'm going to be honest with you: while everybody in the Palantir community are going to be one of two things over the next, let's say, 12 months—there are going to be cheerleaders, who are going to hype it up and will be in a place where it can do no wrong, and they're going to be all about everything good but not even looking at the bad things—which I think is also unhealthy—and you have the haters, who are only going to see the bad and criticize, and in their eyes, Palantir cannot do anything good.
Let me be honest with you: I know that 134 P/E is expensive, and I also know that long-term, that is completely reasonable for me because I see the trajectory. However, I am honest enough and transparent enough to come on here and not play that game where I cannot say anything that is even remotely negative about Palantir. Here, 134 P/E is expensive in the short term—100%.
Now, if you feel that you cannot stomach short-term volatility that might happen because the stock needs a breather, whatever happens over the next couple of weeks, couple of months, take some profits. I'm not against that, folks. I'm not going to hold it against you if you sell 10% of your position just so you sleep better at night for the next six months. Nobody in the entire world has ever gone broke for taking a little bit of profits off the top.
If you take 10%, 15% off the top of your Palantir position, I'm not going to hold it against you, saying, "Well, that was a stupid thing to do." Because sometimes, all you want is some peace and quiet. And if you can't stomach the turbulence, why not? So if you feel like you need that for your mental health, do it. Do it—why not?
Because if the market dips—and if you've been watching this market for the past two years, it is in a complete state of euphoria right now—if this market dips, Palantir is a three-beta stock, which means that for every 10% the market is going to correct, Palantir might correct all the way up to 30%. So it's going to be very, very violent; it's going to be very, very volatile. And if you're not the kind of person who can stomach that and remain relatively well-balanced mentally and emotionally, take your 10% and then secure some profits and feel a little bit more relaxed when it comes in that case should the storm happen.
Well, you’ve got some cash on the sidelines, and you feel a bit better about yourself. And if the stock keeps on running, well, you have your 90% still in the game, and you haven't really missed out on anything.
So I'm not going to be sitting here ignoring the current market euphoria. Okay, let's be honest: I see it. I'm not going to ignore it. I'm going to tell you right now it is very evident.
Now, Palantir's currently in its current pricing configuration might be the most expensive AI stock in the market, and it is clear to see. In the short term, it is possible—and even I would say quite likely—that it's going to correct. Maybe this is the end of the correction; maybe it's not. I don't know. But the reason that I am not actually selling is because I know who I am.
And if you know who you are and you determine that ahead of time, you're not going to have this dilemma. If you know that you are a trader, well, this seems like a very evident possibility of a correction. If you're a long-term investor, you honestly do not care, and you don't play that game. And you shouldn't be buying and selling.
I know that sounds a little bit contradicting. I just told you, "Hey, if you need to take 10% at the top to sleep better at night, do it for your mental health." And then I’m saying, "Well, know who you are." Look, it does not contradict each other; they are completely different things. Taking a little bit off the top for your mental health—that's fine. But understanding that you're running a marathon and this is probably the first five miles of the entire marathon you just ran, and there's still a long way to go—do not get excited about every single price movement every single day.
And look, not every single Palantir investor must have my level of conviction and think about Palantir as the next Microsoft, which makes it a no-brainer why you shouldn't sell. And maybe some have different levels of conviction, and that is fine. I am okay with that. I'm not trying to create an echo chamber where people are not allowed to have different levels of conviction about the stock.
But if you have some issues with conviction about the Palantir story, so to speak, allow me to give you some data. Palantir's growth rate currently is 30% per year. I believe this is just the start, and we haven't even hit—we haven't even scratched the surface of where this is going to go. I think there's going to be an Nvidia moment where we're going to see Nvidia-level growth, which we've seen over the past few years in Palantir.
And while we talk a lot about the commercial sector of Palantir and how Palantir is becoming quasi-monopolistic in the business sector, the government total addressable market—the TAM—is absolutely insane. And in that sector as well, Palantir pretty much has no competitors. In both commercial and government, Palantir has essentially created a quasi-monopolistic company that is solving a problem that a few years ago, none of its customers even knew it had. It's literally what Peter Thiel wrote in his book, "Zero to One" in 2017. It's materializing right in front of your eyes.
Now, the reason that Palantir is so attractive and why it is one of the most expensive, if not the most expensive AI companies in the market, is because people see this. They're seeing this quasi-monopolistic force getting bigger and bigger—the snowball effect—where Palantir is just getting scarier and scarier every single quarter. They came into these latest earnings with so much hype and still blew everybody out of the water.
And they look under the hood and they say, "Well, look, these guys have a massive moat, no competition, lots of scalability; their client acquisition costs are minuscule at best." All the biggest players—like AWS, Accenture, and all the big players, Oracle, just to name a few—are deciding, "Wait, we can't fight these guys; we better join them. We need them!" So all these big players are essentially jumping on board, saying, "Hey, we're not going to fight Palantir." Microsoft actually tried with Fabric and, you know, failed miserably, flat on their face. But nobody else wants to try at this point. Why would you, right?
So right now, we're looking at almost $3 billion of annual revenue. That is what Palantir is about to be in a couple of quarters. That is absolutely insane because just in 2021, we were at $1.5 billion. So the company in about two or three years has doubled its revenue. At the same time, the operating expenses to generate a 100% growth in revenue were only 10%.
So if you can generate 100% revenue growth by increasing your operating expenses by 10%, you have to understand the meaning of how scalable this business is. And that is why the operating income of Palantir over the past three years is up 200%.
Now, free cash flow over the past two years is up almost 400%. Net income is up 200%. Debt has declined by 3%. And right now, Palantir is almost at $5 billion of cash and about $250 million of debt and a really, really good margin of about 14% operating income before they started even scaling.
Now, I said multiple times on this channel, in my private Patreon group (patreon.com/nash), I've said it multiple, multiple times: FOMO and panic are really evil brothers that you never want to be around. FOMO—fear of missing out—and panic are two sides of the same story. If you're panicking into a stock or panicking out of a stock, both are highly emotional-driven decisions, and completely irrational. They're not going to end well.
The same thing goes for waiting for a pullback or calling the top or calling the bottom, and all of this nonsense that people are trying to do. I said it in the beginning of the video: if you need to take 10% to sleep better at night, while acknowledging that you don't know where the stock is going to go, and you're doing kind of an exercise to alleviate your mental pressure—do it! But people who try to call the top and bottom on a stock like this, on the market in general, that is nothing but gambling.
Peter Lynch, I think, said it best. I think anybody could have said it better: a lot more money was wasted and lost waiting for a pullback or trying to time the pullback than the pullbacks themselves actually generated.
Now, if you look at this market right now, you have Nvidia taking over the infrastructure. You have large language models essentially becoming commodities. And you have Palantir creating this operating system, one of a kind, that can scale, create compliance, create efficiencies, and a way to massively deploy these LLMs and AI systems in any business, in any industry, with ease. And they're pretty much the only game in town, and that is why Palantir reminds me of Microsoft about 15 years ago.
Now, was Microsoft already expensive 15 years ago? Sure, it was trading at $20 per share, and it was already expensive because it went way, way parabolic since the IPO. But guess what? By 2014, just five years later, the stock was worth $40 per share. It had doubled. And by that point, that was already too expensive for most, but guess what? By 2018, the stock had gone to $80 per share, and at that point, it was surely too expensive. But guess what? Two years later, in 2020, the stock went up to $260. It doubled again. By that point, it was surely too expensive. And guess what? Four years later, it’s sent to $400 per share. And again, of course, it is too expensive.
Now, my point here is very, very simple: is Palantir short-term overvalued and overhyped? Possibly. Is it an extremely expensive stock? Probably the most expensive AI company right now in the market? Probably. Does it matter to me? Not at all. Because I believe in one simple principle: it is never too late to buy a great company.
The question you need to ask yourself isn't, "Should we sell Palantir here? Did the stock run up too high?" Come on, cut it out! You should never sell a stock because the price has run up too much, and now you've locked in profits. That's just silly. All you have to do is ask yourself one question: Is Palantir a stock I want to invest in? Is it potentially the next Microsoft-level company? Does it have a moat? Does it have a client base? Does it have a huge business? The margins?
Look at the business, folks! Imagine you’re buying the whole company: do you want to own this company? And if the answer is yes and you want to own Palantir, then just ignore the price. The only thing you need to be looking at is how much the stock is trading compared to the 52-week high.
And that's the system we teach on our Patreon (patreon.com/nash) in our Academy, ROIC Academy. And the system we teach is quite simple. If the stock price that you're looking at and the stock that you like is trading normally, you dollar-cost average at all times. You buy at all times, ignoring all that noise about the macro, the wars, the economy; the company—buy, buy, buy!
As long as the thesis about your company does not change, as long as your desire to own the company doesn't change, you completely ignore the price.
Should the price drop, let's say, 20% below the 52-week high, then you double down. Instead of buying $100 every week, you buy $200 every week. And you continue to do so like clockwork, like a bot, until the price climbs back up. And if the price happens to climb 20% above the 52-week high within the last 30 days, you might consider slowing down and buying $50 instead of $100 every single time.
There are different variations to the system, but the point being is you buy at all times. You buy more when it's down; you buy a little bit less when it's up. And when you zoom out five years later, your average cost in this stock is very, very close to the bottom without timing the market even once.
Now, I urge you to give it a go. Join our Academy (patreon.com), join the ROIC Academy, try it out. There's a 30-day money-back guarantee for anybody who joins today, and once you join, you'll have access to hundreds of hours of lectures about all these things, all these systems we have taught. Everything is archived for you to watch right now.
I don't mind if you join, watch all the lectures in 29 days, and ask for a refund. I don't care—do it! Just as long as you're getting better at this investing game, I do not mind.
Join, see for yourself why 7,000+ people have signed up. Thank you so much! Go Palantir! Hold the line! I'll see you later.