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Ask any investor worth his salt, and he’ll tell you that timing matters, quite a lot, in fact. Unfortunately, Loop Capital has chosen to go all-in on Palantir at a time when the high-flying darling of the AI world is taking a proverbial beating from all corners.
For the benefit of those who might not be aware, Palantir is an AI-powered Software-as-a-Service (SaaS) provider that allows companies and government agencies to gather and analyze reams of data, enabling the detection of hidden patterns within complex datasets. In what is its characteristic feature, the company’s software-based offerings summarize and present the analyzed data in a manner that is quite easy to understand.
Palantir filed its requisite Form 10-K with the SEC today, revealing among other things a change in the compensation plan of its CEO, Alex Karp, one that will allow him to sell up to 9.975 million shares (worth ~$1.23 billion) through the 12th of September 2025. Bear in mind that Karp’s earlier plan had allowed for the sale of 48.9 million shares. Despite its reduced size, the current plan still entails significant dilution, and the stock has responded in-kind by taking a deep plunge today.
Palantir shares took another downward leg in the afternoon when reports emerged that the US Defense Secretary, Pete Hegseth, had ordered Pentagon officials to develop a new budget that would cut defense spending by 8 percent annually.
Prima facie, given Palantir’s reliance on contracts from the US government, this spending retrenchment is a negative catalyst for the stock. And, the stock has predictably crashed, tumbling 10 percent in the regular trading session and another 3 percent in the after-hours trading.
However, we would like to point out that Palantir might end up as a beneficiary of the oncoming fiscal retrenchment at the Pentagon, especially given the company’s excessive focus on unlocking efficiency gains and optimizations. In fact, traditional defense contractors such as LMT, Northrop Grumman (NOC), and Boeing (BA) might have a lot more to lose.
This brings us to the crux of the matter. Loop Capital analyst Rob Sanderson has initiated coverage on Palantir today with a ‘Buy’ rating and a price target of $141.
While highlighting Palantir’s “enormous market opportunities,” Sanderson concedes that “at nearly 44x EV/2027E Revenue, we acknowledge that it’s hard to say that this is the right spot to step up on PLTR.”
Sanderson then goes on to declare:
“While we usually don’t recommend paying 44x sales for software companies, we believe Palantir has all the hallmarks (i.e., massive market, category leader, strong execution) of becoming a game-changing software stock along the same lines as Adobe in digital marketing and salesforce.com in cloud.”
In what is the crème de la crème of Loop Capital’s investment note on Palantir, Sanderson says:
“So we believe the best strategy is to hold your nose on valuation and just get involved.”
As a parting shot, consider the following: Alex Karp’s compensation plan was initially a lot bigger. So, from a dilution perspective, things could have been a lot more dire. Also, Palantir just might emerge as the big winner in the ongoing quest for financial discipline at the Pentagon, given its relentless use of the optimization buzzword. So, Loop Capital’s bullish call might ultimately prove to be quite prescient.
Finally, as we noted previously, Palantir is absolutely smashing performance metrics as envisioned under the so-called “Rule of 40,” which posits that a company is healthy if its growth rate plus profit margin either equals or exceeds 40 percent. As of Q4’24, Palantir’s “Rule of 40” score sat at an eye-watering 81 percent.
