Palantir has become a key player in the AI industry. The company reported a 63% increase in revenue, with U.S. commercial sales jumping by 121%. It reached $600 million in adjusted operating profit and surpassed $1 billion in quarterly revenue for the first time. However, despite these successes, the stock had a brief rise before stabilizing, showing uncertainty among investors. Palantir’s valuation is notable, with forward earnings multiples at 240x and 85x sales. This exceeds usual market expectations as the company shifts from being a defense contractor to a data leader. U.S. commercial sales now make up 75% of its revenue due to strategic changes influenced by global politics. Yet, Wall Street remains cautious about how to value the stock, despite its operational successes.

Retail Interest and Market Hesitation

Only a quarter of institutional analysts recommend buying Palantir stock, yet retail investors are intrigued by its vision. The company is known for effectively monetizing AI and aims to be a leader in data governance. Although there is market excitement, concerns about future growth and the impact of geopolitical factors on government contracts linger. After its impressive earnings report, Palantir’s stock seems to be experiencing some turbulence. The initial 7% surge in after-hours trading has turned into a period of sideways movement, indicating a struggle to maintain gains. This behavior suggests a clash between those who believe in the AI potential and those who are more cautious. The high valuation creates volatility opportunities for traders. Implied volatility for Palantir options remains unusually high at around 80%, well above the market average and notable for the tech sector. This indicates that the market anticipates significant price movement but is divided on the direction.

Strategies for Handling Volatility

In this context, we can explore strategies that take advantage of the uncertainty or offer protection. One option is buying out-of-the-money puts that expire in March 2026. This can hedge against a market correction, even though the cost is significant. For those who think the stock will stay within a certain range, selling premium through strategies like an iron condor could be appealing. This strategy benefits from high volatility by betting that the stock won’t experience significant movements in either direction over the coming weeks. A similar situation occurred in the summer of 2024 when the stock consolidated for two months after a big rally. These historical parallels are striking. Cisco, back in March 2000, was a revolutionary company with a P/E ratio over 150, only to crash during the dot-com burst. Palantir’s current forward P/E over 200 makes that moment in history feel quite relevant today. The biggest risk for Palantir isn’t its performance; it’s the broader economy. With the 10-year Treasury yield rising to 4.6% last week, borrowing money is no longer cheap. Such a high valuation is very sensitive to interest rates, and any indication from the Fed that they may continue raising rates could lead to a reevaluation. Create your live VT Markets account and start trading now.

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