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The U.S. stock market is undergoing a sharp correction, with major indices under pressure and semiconductor stocks tumbling as investors reassess risk. Following last year’s robust rally, market conditions have shifted dramatically, leaving speculative tech names particularly vulnerable to rapid selloffs driven by tariff concerns.
Amid this cautious climate, attention is turning to the so-called “bro bubble” that once fueled explosive gains in cryptocurrencies and tech stocks. Bank of America strategist Michael Hartnett suggests that the era of “testosterone-fueled rallies” may be coming to an end.
One of the hardest-hit names is Palantir Technologies (PLTR), which has experienced a multi-day selloff as key support levels break down. Hartnett notes that critical price points have been breached, signaling a broader market shift from speculative enthusiasm to a fundamentals-driven approach.
For investors, the key question now is whether to abandon overhyped stocks like Palantir. According to Bank of America’s latest analysis, the days of exuberant tech plays may be numbered, and those still clinging to the “bro bubble” could face steep losses as market sentiment continues to cool.
About Palantir Stock
Valued at $197 billion by market capitalization, Palantir (PLTR) is a big data analytics company that provides software solutions to both government and commercial clients. In recent years, however, Its business has become associated with the defense industry, securing major contracts with national security and intelligence agencies. On the surface, this is good for the company, but heavy reliance on government contracts also brings significant risks.
This dependence was evident last month when Palantir’s stock sold off following news of a proposed 8% annual reduction in the U.S. defense budget over the next five years, highlighting the volatility tied to government spending.
Shares of Palantir have been on a bull run over the past year, gaining 256% in the last 52 weeks. However, this growth has slowed recently, with shares pulling back 30% from their all-time high of $125.41. The primary drivers of this selloff include a broader tech stock downturn along with apparent AI spending cuts by Microsoft (MSFT) and reductions in the U.S. defense budget, both of which have weighed on Palantir’s performance.
Palantir Delivers Beat-and-Raise Quarter
On Feb. 4, shares of Palantir surged 24% after reporting better-than-expected Q4 earnings. Revenue came in at $828 million, marking a significant 36% year-over-year increase, while EPS of $0.14 easily surpassed expectations of $0.11.
The segment breakdown showed strong growth, with U.S. commercial revenue rising 64% and U.S. government revenue increasing 45% from the previous year. While government contracts account for 50% of Palantir’s total revenue, the recent budget cuts may impact the company but will not threaten its overall business.
Palantir’s Q4 2024 earnings report also highlighted strong liquidity, with cash and cash equivalents reaching $5.2 billion. The company generated $460 million in cash from operations, reinforcing a solid free cash flow profile.
Alongside its robust quarterly results, Palantir also raised its guidance for the current quarter, now expecting revenue between $858 million and $862 million. For the full year, the company forecasts revenue between $3.74 billion and $3.76 billion.
Is PLTR Stock Overvalued?
One of the primary concerns surrounding PLTR is its soaring valuation. Despite a recent haircut, PLTR is still trading at 149x its adjusted forward earnings, making it the most expensive AI stock in the industry. It is also trading 577% above the sector median, raising concerns among investors.
To justify such an astronomical multiple, Palantir would need to deliver ultra-bullish growth, which seems unlikely. Even if the company were to grow at an annual rate of 30% over the next five years, its annual earnings would only reach approximately $3.3 billion, resulting in a forward P/E of around 62x, nearly half of its current ratio.
What Do Analysts Think About PLTR Stock?
The analyst community remains skeptical about PLTR stock, assigning it a consensus “Hold” rating. Among 19 analysts covering the stock, three have a “Strong Buy,” 10 have a “Hold,” one has a “Moderate Sell” rating, and five have a “Strong Sell” rating
The stock has already surpassed its mean price target of $85.11, but the Street-high target of $141 suggests more than 60% potential upside from current levels.
