Why I’m not buying stock in Palantir or Tesla…yet
Palantir (NASDAQ: PLTR) and Tesla (NASDAQ: TSLA) are two of the hottest tech stocks in the market right now. Over the last six months, they’re up 105% and 77% respectively.
Looking ahead, both of these companies appear to have tremendous growth potential given their innovative AI-related products and services. However, hereâs why Iâm not buying stock, or at least not yet.
Palantir’s generating unprecedented growth
Palantir’s no longer a company that can be ignored. On the back of the success of its Artificial Intelligence Platform (AIP) â which allows private and public organisations to build, deploy, and operationalise AI on their own private data and systems â its recent growth has been unbelievable.
Last quarter, it reported revenue of $1bn, up 45% year on year. In the two quarters prior to this, top-line growth was 39% and 36%, a noteworthy acceleration.
These kinds of numbers suggest the company has a really good product. And it makes me think that I should have some exposure to the business in my portfolio.
The thing is, at present, the company has a market-cap of $420bn. Thatâs pretty high given that 2025 sales are only forecast to be $4.2bn.
That market-cap puts the forward-looking price-to-sales ratio at 100. For reference, AI chip powerhouse Nvidia‘s currently trading at about 21.
The problem with that kind of triple-digit valuation is that it implies top-line growth’s going to stay very high for a while. And things may not play out this way.
What if corporate AI spending slows a little and Palantirâs top-line growth is only 25%? In this scenario, Iâd expect the stock to fall sharply as investors reset their expectations.
Given the high price-to-sales multiple, this stock’s staying on my watchlist for now. I can see myself owning it at some stage, but Iâm not ready to pull the trigger yet.
Tesla has huge potential
Turning to Tesla, itâs not experiencing the same kind of growth as Palantir. This year, revenues are actually projected to fall year on year.
Taking a long-term view however, the future looks exciting. Not only is the company likely to be a major player in autonomous vehicles (it already has robotaxis on the road in the US), but it also looks set to be a big player in humanoid robotics (thanks to its âOptimusâ robots).
Zooming in on the humanoid robotics side of the business, this appears to have considerable potential. According to analysts at Citi Global Insights, the market for humanoids could be worth $7trn by 2050.
Now, the price-to-sales ratio here doesnât look crazy. Currently, itâs about 15.
The metric that’s problematic for me however, is the price-to-earnings (P/E) ratio. Currently, this stands at about 250 (versus 39 for Nvidia).
For a well-established company with many years of profitability, that’s a really high multiple. To my mind, it just doesnât match the fundamentals, despite the growth potential here.
Right now, Tesla’s trading like itâs going to own both the autonomous driving and humanoid robotics markets. This is unlikely to be the case though as it looks set to face intense competition in both.
So like Palantir, this stock’s staying on my watchlist for now. If the valuation comes down to a more reasonable level, I will consider it for my portfolio.
The post Why Iâm not buying stock in Palantir or Tesla…yet appeared first on The Motley Fool UK.
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Edward Sheldon has positions in Nvidia. The Motley Fool UK has recommended Nvidia and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
