Palantir (PLTR) trades at 552 times earnings and 175 times forward earnings. Bank of America has a price target of $255.
Michael Burry purchased a $9.2 million Palantir put option expiring in 2027 with a $50 strike price.
Palantir maintains a 50% free cash flow margin, with full-year free cash flow estimated at $2.1 billion.
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Michael Burry has been clashing with Wall Street bulls, especially regarding Palantir (NASDAQ: PLTR). Bulls have been winning big so far, and price targets are getting bolder. On the other hand, most analysts are on the fence with a “hold” rating on the stock, with three giving it a “sell” rating. There are four “Strong Buy” ratings, with a top price target of $255, ranging from Bank of America (NYSE: BAC).
Burry believes PLTR stock may be on the verge of imploding, and his bearish thesis focuses on the stock’s sky-high valuation. PLTR stock trades at 156 times trailing sales and 552 times trailing earnings. The stock currently trades at 175 times next year’s expected earnings, a valuation not seen by other big tech stocks since the dot-com era.
This may be old news, but before we dive in, it’s worth a refresher.
Burry holds put options on approximately 5 million shares of Palantir stock, with a notional value of approximately $912 million. It is the largest bearish bet in his portfolio, accounting for 66% of his reported holdings. The actual amount involved is much lower. Burry himself posted on X that he spent $9.2 million to buy 50,000 put options on Palantir.
The options expire in 2027 and have a strike price of $50. Burry is betting that PLTR stock will fall well below $50, allowing him to sell at a higher strike price when the stock expires.
Regardless, this is a drop in the bucket compared to Barry’s spending power. That nominal value did generate dramatic headlines and drew comments from Palantir CEO Alex Karp, who called Barry “crazy” in an interview.
The bulls’ argument is essentially that Palantir is an extraordinary company that deserves an extraordinary valuation. It has managed to achieve significant growth after stepping into any company/institution. What’s truly unique about this growth is the company’s free cash flow margin of nearly 50%. For a company that’s considered early in its growth cycle, Palantir is really good.
Management took a stern approach and it worked wonders. Karp said Palantir will cut more employees while the company expects revenue growth to accelerate. This is possible because Palantir makes software and then maintains its own software automatically through Palantir Apollo. In turn, the companies or institutions that use its software become customers with extremely high profit margins and low churn.
Full-year free cash flow is expected to be as high as $2.1 billion. This is likely an understatement, as Palantir tends to understate its guidance to keep expectations low.
If we take a high-end 2026 revenue estimate of $7.39 billion and assume FCF margins of 50%, PLTR stock is currently trading at about 120x forward FCF. That makes the stock’s valuation more reasonable, but there’s no denying it’s expensive.
Burry made valid claims, but he also made several failed attempts to repeat his Great Recession-era victories. As for Palantir, he may end up being proven right if the AI rally ends prematurely, but PLTR stock falling below $50 by 2027 is not something I would bet on.
The valuation in January 2027 is $119.24 billion, which is approximately 28 times expected free cash flow in 2027.
It’s likely that Palantir will disappoint in growth or profits at some point in the near future, and the stock could temporarily pull back. That said, it’s unlikely that PLTR stock will be trading at such a low valuation in a year’s time. If PLTR shares fall below $100, many bears will start digging into their pockets.
Only a catastrophic recession would make that happen, and you have more important things to worry about.
Anyway, if you were a bear, I would actually follow Barry. No telling how long this rebound will last. Therefore, keep the vast majority of your portfolio in safe assets like Treasuries and only bet a small portion short on stocks like PLTR. Burry is worth hundreds of millions of dollars, but he only spent $9.2 million on the PLTR put contract.
If you are bullish, I would avoid chasing the rally and put a hard cap on stocks like PLTR at about 10% of your portfolio. We haven’t seen a company like Palantir, but the only “precedent” in terms of valuation is the dot-com bubble.
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