PLTR stock retraces after US credit downgrade, awaits earnings on Monday
- Palantir stock reports earnings on Monday, August 7.
- PLTR stock climbed as much as 161% from its May 8 close.
- Wedbush Securities’ Ives gave PLTR a $25 price target.
- Fitch’s US downgrade has caused the indices to fall for a second straight day.
Palantir (PLTR) stock fell about 1% at Thursday’s open after losing 5.1% on Wednesday as the broad equity market contracted from the bearish news that Fitch had downgraded the US government’s credit rating. Indices are down across the board on Thursday, with the Dow Jones Industrial Average (DJIA) losing 0.2%, the NASDAQ Composite dropping 0.3%, and the S&P 500 giving back 0.4%.
Palantir stock is trading near $18.78 at the time of writing.
On the daily chart, Palantir suffered a bearish candle on Wednesday that could signify a technical end to the rally that began all the way back on May 9 and added as much as 161% to Palantir’s share price. Still, bulls remained eager to buy up what bears were selling on Wednesday, so this story stock (artificial intelligence) still has a lot going for it, not to mention nearby support levels.
Palantir Stock News: Macro sentiment negative, but quarterly results arrive soon
The macro picture seems to be taking a turn for the worse for equities. Fitch’s downgrade of the US government’s credit rating from AAA to AA+ on Wednesday led to a broad sell-off that included Palantir stock. The ISM Manufacturing PMI on Tuesday arrived short of consensus, with the sector in contraction for the ninth month in a row. Wednesday’s ADP Employment Change data for July also showcased a tighter US labor market, which makes hawkish Federal Reserve policy more likely.
With all that said, Palantir’s quarterly earnings results arrive next Monday, August 7. Investors are not unwise to hold out for a successful earnings call. The PLTR rally over the past three months was kick-started by the Q1 earnings report that showed the artificial intelligence (AI) company offering up its first GAAP profit ever, albeit a single penny per share. Still, the market was spurred on by an optimistic outlook that should show up in this latest quarter’s results.
Wall Street analysts have placed consensus for the second quarter at a repeat of Q1’s earnings results and revenue of $534.3 million – a mere 1.7% growth over the prior quarter that should be easy to beat.
Well-known Tesla (TSLA) and tech booster Dan Ives, a prominent analyst for Wedbush Securities, initiated coverage on Palantir last Friday with a bullish $25 price target on the stock. The price target is now the highest on the Street, but Ives defended it by calling Palantir the “Messi of AI”.
“In a demand environment that looks to evaluate the legal, ethical, and trustworthy effects of AI deployment, Palantir’s existing relationships with secure organizations such as the CIA, DoD, JPM, Cisco, AWS, Google and MSFT among others, validate PLTR’s excellence in security and compliance demonstrating the company’s ability to provide trusted solutions in sensitive environments,” Ives wrote in a note to clients.
Ives’ Outperform rating on Palantir stock is well off the mainstream view, however. The average Wall Street analyst price target is $13.50, based on forecasts taken from the past three months. The most common view is just that Palantir is overvalued based on PLTR trading for a $40 billion market cap while generating slightly in excess of $2 billion in annual sales.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.