Could Palantir drop 40%+ from current levels?

I’ve been investing for 25 years and I’ve learned, as an investor, I don’t worry about probabilities as much as I worry about possibilities. So, is it LIKELY Palantir will make it back below $10? Not necessarily. But once I’ve bought a stock, I no longer worry about how high it can go, I worry about how low it can go.

Here’s what’s working in Palantir’s favor:

1. A long track record with government clients who are notoriously sticky.
    
2. An increasing number of non-government clients where it’s easier to raise prices and increase profit margins.
    
3. The recent ability to turn a profit instead of losing money (although they reported a loss last quarter).
    
4. Palantir offers Artificial Intelligence as a service, the new hotness in the investing world.

Here’s what’s working against Palantir:

1. Palantir is extraordinarily overbought right now. The 1-year target price estimate for the stock is $9.88, nearly 40% lower than where it closed Friday.
    
2. Investors are pricing in an increasing market for AI spending, which is great, however AI companies are being valued as if that spend will take place in the next 12 months when experts believe it’s more likely to take 6-8 YEARS for the addressable market to increase by the extent that companies like Palantir and Nvidia are CURRENTLY valued.
    
3. In the last 23 days, Palantir has increased more than +135% and is up nearly +190% from its bottom just 6 months ago at the end of December.
    
4. Economic experts like Jeff Snider (EuroDollar University podcast linked in my show notes) believe not only is a massive global deflationary recession coming, that it’s ALREADY underway. Should we see a global recession, the markets – which are incredibly overbought (the S&P is up 14.9% YTD and the NASDAQ is up an astounding +31.8% YTD) will DEFINITELY sell off and when markets sell off, tech stocks and the NASDAQ ALWAYS sell harder than the S&P and Dow Jones (although I don’t think of DJI as anything more than a mutual fund – it’s 30 stocks, after all).
    
5. When markets sell off, investors sell EVERYTHING – not just what they want to sell but what they CAN sell. There are many, MANY investors and traders who piled into Palantir in the last few weeks meaning their cost bases are likely between $10-16 and then there are longer-term traders and investors who have cost bases UNDER $10 with many who likely have a cost basis around $5.93 (Palantir’s all-time low) and $7.50 where Palantir established a significant amount of price action. This means the weak hands will sell, but even longer-term holders may be tempted to take profits since it’s always possible that Palantir’s bottom at $5.93 might NOT hold during a systemic marketwide selloff.

O.K. So enough fear-mongering… what’s my approach?

I opened my position in Palantir in February 2021 at $31.50/shr after it had pulled back more than 30% from its all-time high at $45… and I was EARLY. Over the subsequent two years, I bought in stages (and even took profits in September 2021) and lowered my cost basis -47.78% to where it is now at $16.45.

I’m a long-term investor with a 25-30 year time horizon and if I didn’t have confidence in the long-term prospects of Palantir, I would sell it. However, I never worry about the upside. I worry about the downside.

Since Palantir was just at my buy price target a little over just ONE MONTH ago, I’m in no hurry to add to the position. If it pulls back but finds support above $10 without ever going lower, that’s a high-quality problem: sure, I won’t be able to add more to my position, but a bottom is a bottom.

HOWEVER, if the AI bubble bursts AND there’s a systemic market crash, Palantir might not just crash to its $5.93 low, it could BREAK its low. I need to make sure I have dry powder on the sidelines so I can add to it under $10 and even under $5.93. If that never happens, again, a high quality problem.

I have a sizable position in Palantir which is FINALLY bouncing around my cost basis. If Palantir continues to rally, it will likely hit my next profit target VERY soon. If that happens, I will raise my buy target, likely above $10.

I have no plans to dump my Palantir position entirely. In fact, I have no plans to cut my losses. If it pulls back from these levels, I’ll stick to my buying plan. If it moves higher from here, I’ll take profits.

As always, have a plan for both directions: what are you going to do if your stock goes UP from here and what are you going to do if your stock goes DOWN from here?