Valuation concerns took hold on Wall Street today, sending Palantir and its fellow tech stocks lower.
Stocks hit the pause button on Tuesday, with all three main indexes finishing in the red. Tech stocks led the decline as valuation concerns overshadowed solid results from artificial intelligence (AI) firm Palantir Technologies (PLTR).
This risk-off mood was seen in other corners of Wall Street, too, with bitcoin tumbling below the $100,000 mark for the first time since June.
At the close, the tech-heavy Nasdaq Composite was down 2.0% at 23,348, the broader S&P 500 was off 1.2% at 6,771, and the blue-chip Dow Jones Industrial Average had shed 0.5% to 47,085.
Palantir was one of the most notable decliners today, shedding 7.9% despite the big data analytics firm’s impressive earnings report.
After Monday’s close, Palantir said third-quarter earnings doubled to 21 cents per share, while revenue surged 63% to $1.18 billion – more than analysts expected. The company also gave stronger-than-anticipated fourth-quarter guidance and raised its full-year revenue and free cash flow guidance.
“This was a major validation moment for Palantir about AI demand and the growth trajectory over the next few years, which is accelerating at an eye-popping pace,” says Wedbush analyst Daniel Ives.
But fears of a market bubble have been swirling – and Palantir’s meteoric rise is not helping the matter. Indeed, shares were up 174% for the year to date heading into Tuesday’s session to trade at 294 times forward earnings. By comparison, Nvidia (NVDA, -4.0%) trades at 44 times forward earnings.
Additionally, several Wall Street CEOs, including Morgan Stanley’s (MS) Ted Pick, said during a financial summit in Hong Kong on Tuesday that “markets seem expensive” and there’s a “possibility” of a 10% to 15% drawdown in the near term.
“Valuation angst is hampering animal spirits in markets,” says José Torres, senior economist at Interactive Brokers. “Furthermore, there’s a general sense amongst equity bears that a pullback is long overdue, even as the calendar offers a favorable seasonal backdrop, considering that November and December tend to deliver some of the strongest returns.”
Still, unlike Michael Burry, who revealed a massive short position on Palantir, Wedbush’s Ives is overwhelmingly bullish on the stock. He believes any selloff represents an opportunity for long-term investors, and says he “would be buying [PLTR] all day long given our view that this will be one of the AI tech stalwarts over the next decade.”
Uber Technologies (UBER) was another post-earnings decliner, falling 5.1% after the ride-sharing company’s third-quarter results.
UBER reported stronger-than-expected earnings of $3.11 per share thanks to a $4.9 billion tax benefit, while revenue of $13.5 billion also topped estimates. Uber’s third-quarter trips jumped 22% year over year and gross bookings increased 21%.
“Uber’s app is truly becoming the ‘super app’ they’ve envisioned – rideshare, food delivery, groceries, and, increasingly, autonomous rides,” says Eric Clark, portfolio manager of Alpha Brands’ LOGO ETF. “They keep adding new services that build user frequency and engagement, which drives higher gross bookings and profitability.”
But considering the industrial stock was up 65% for the year to date heading into Tuesday’s session, today’s decline represents consolidation “after a big run,” says Clark.
Not all of the day’s post-earnings price action was to the downside. Hertz Global Holdings (HTZ) surged 36.2% after the car rental company disclosed its third-quarter results.
For the three months ending September 30, Hertz reported earnings of 12 cents per share compared to a per-share loss of 68 cents in the year-ago period. While revenue slipped 4% to $2.5 billion, the company said its utilization rate topped 84%, its highest level since 2018.
Most of Wall Street remains on the sidelines when it comes to the company that emerged from Chapter 11 bankruptcy just four years ago. Of the 10 analysts covering HTZ who are tracked by S&P Global Market Intelligence, six say it’s a Hold and four have it at Sell or Strong Sell. This works out to a consensus Hold recommendation.
