Is Palantir Stock the Right AI Play?

Morgan Stanley downgraded Palantir stock to “underweight,” but did hike its price target

Palantir Technologies Inc (NYSE:PLTR) is sitting out the broad market rally today, down 7.4% to trade at $15.08 and set to snap a four-day win streak. Morgan Stanley downgraded the software stock to “underweight” from “equal weight” this morning, citing an unfavorable risk-reward profile. The analyst in coverage did, however, lift its price target to $9 from $8. 

The brokerage noted this near-term optimism in the AI product cycle and the stock’s valuation contribute to a risky setup, especially given “Palantir’s lack of a monetization strategy for AIP.”

Palantir Technologies is a red-hot artificial intelligence (AI) play, up 154.4% in 2023. However, the broader-market’s rut this month, as well as a negative post-earnings reaction, dragged Palantir stock 23.7% lower in August, its worst month on record.

This pullback has prompted a bevy of short sellers, with short interest up 13.7% in the most recent reporting period. The 135.78 million shares sold short account for 7.5% of Palantir stock’s total available float. 

So far, today’s put volume of 44,000 is running at triple the average intraday amount, though 58,000 calls have also been traded — double the volume typically seen at this point. New positions are being bought to open at the weekly 9/1 15-strike put, which is followed by the 15.50-strike call in the same series.

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