Date: February 27, 2025
Type: Long
Conviction: High
Time Horizon: 1-3 months
Catalyst Profile: Insider selling panic, AI/defense contract increase, gap-fill completion, market overreaction
Palantir completed a technical gap-fill on February 27th, retracing a multi-month earnings gap that had previously accelerated institutional accumulation. Downside was triggered and exaggerated by CEO Alex Karp’s insider sale. There is a clear sentiment dislocation despite improving contract fundamentals, growing US government exposure, and Palantir’s emerging position as an unregulated AI focused defense monopoly. This trade was made as a tactical entry on technical and behavioral reversion, backed by their longer-term structural edge in data integration, defense AI, and their monopoly in their sector.
Alex Karp’s insider sale was misinterpreted by retail investors, leading to panic and algorithmic sell offs. Alex Karp sold ~400k shares under a pre-scheduled 10b5-1 plan, however the media and retail investors treated this sale as a bearish sign and a sign to exit to overvalued company. However, historically Karp and Palantir insiders have followed routine selling cadences after their long lockup cycles. This selling is not new or unusual behavior by any means.
Palantir provides real-time decision software through Gotham, Foundry, and AIP to the US military, intelligence, and law enforcement. One unique aspect of their contract is that Palantir’s platforms are deployable without DoD specific code rewrites, allowing rapid scaling across agencies. As of Q4 2024, US government revenue grew 45% YoY and they maintain a backlog of $1.79 billion showing significant consumer interest and a strong government relationship. Unlike traditional defense contractors primarily focused on physical arms and requiring direct compliance with Foreign Military Sales (FMS) regulations and strict arms manufacturing controls, Palantir's core business involves providing advanced data analytics software to US government agencies, including the NSA, CIA, and FBI. While not subject to identical 'arms regulations,' Palantir operates under stringent security and compliance frameworks mandated by these agencies, adhering to standards like FedRAMP and DoD Impact Levels. Furthermore, its technology is subject to U.S. export controls (EAR) and sanctions (OFAC), and its use by government clients in foreign operations means it indirectly supports initiatives that fall under broader military and intelligence regulations, including, at times, aspects of ITAR and FMS compliance depending on the end-use and customer.
Palantir is uniquely positioned to capitalize on AI defense and DoD tailwinds, highlighted by its deepening integration into US military operations. Palantir secured a $400.7 million contract extension with the US Army in December 2024 to continue providing its AI-enabled Vantage system as the Army's primary data platform for logistics and readiness, effectively moving beyond legacy systems. Furthermore, Palantir's Artificial Intelligence Platform (AIP) is actively being trialed by the U.S. Navy and other defense branches, indicating significant expansion of its AI capabilities within the military. Critically, Palantir is emerging as a leading non-defense-prime contractor for advanced AI capabilities, positioning Palantir at the forefront of the DoD's modernization efforts and the broader AI arms race.
As of its Q4 2024 earnings call on February 3, 2025, the company reported an 81.3% gross margin for the full year 2024, demonstrating strong unit economics for its software platforms. Palantir has also achieved adjusted free cash flow positive for seven consecutive quarters, generating $517 million in adjusted free cash flow in Q4 2024 alone. While specific 2025E EPS multiples vary by analyst, consensus estimates for FY2025 EPS projected around $0.37-$0.41, placing its forward P/E at approximately 214x to 237x based on the February 25, 2025 closing price of $87.76. This is still a crazy premium, however, it reflects the high growth expectations for an AI leader. When comparing enterprise value to sales, as of February 2025, Palantir's forward EV/S hovered around 10-12x, which, while premium, could be seen as competitive against high-growth SaaS peers like Snowflake and Datadog.
Valuation multiple contraction and privacy advocates.
Expect some DCA as there is bearish momentum.
This is simply a case of public sentiment overreacting to a planned insider sale. This created a high conviction mean-reversion setup in an industry dominated AI defense platform. The market remains overly focused on optics and insider sales, while they miss the reality that Palantir is the only commercial AI company with deep access to US military intelligence, and zero comparable competition. This gap-fill panic created the ideal long entry scenario.