(Bloomberg) -- Investors betting against Palantir Technologies Inc. are throwing in the towel as the software maker’s shares keep pushing higher, aided by fervent retail traders and heightened geopolitical tensions.
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Short interest in Palantir as a percentage of shares available to trade is about 2%, down from a high of 5% in October, according to data from S3 Partners. The stock has rallied nearly 300% over that span, handing short sellers paper losses of roughly $7 billion. Shares extended that gain in early trading Thursday, rising as much as 3.7%, on track for a record close.
Palantir, which makes software used by governments and corporations to analyze large volumes of data, is the best-performing stock in the S&P 500 this year amid excitement about its artificial intelligence products and signs that it’s winning more business from the Trump administration. Palantir is also the most expensive stock in the benchmark, however, with a price to estimated sales ratio of 76 times. Nvidia Corp., by contrast, is priced at 17 times.
The momentum behind Palantir, which helped send shares to a fresh intraday record on Wednesday, has made it dangerous to bet against, even though the valuation is difficult to justify, said Thomas George, president at Grizzle Investment Management.
“The frenzy can go on for longer than the bears or shorts would like, and we’ve seen too many people get their fingers chopped off trying to short something,” George said. “It really feels like the stock is trading on vibes.”
While Palantir stands out on Wall Street for both its lofty multiple and the size of its rally, the stock has proven remarkably resilient, frustrating those betting on a reversal. Some have even likened it to a meme stock, given the heavy interest from retail investors who think demand for AI software will keep Palantir’s revenue expanding at a rapid clip.
Palantir’s work with government and military customers has been in particular focus in recent sessions as US strikes on nuclear facilities in Iran over the weekend raised the specter of a broader conflict in the Middle East. President Donald Trump announced a surprise ceasefire agreement between Israel and Iran following more than a week of drone and missile attacks between the countries.
Story Continues“Palantir is in the right area code for the future of defense tech, so the market could view a fair tailwind from the events over the weekend,” George said. It “is clearly a beneficiary of heightened geopolitical tensions, but even heightened geopolitical tensions don’t justify Palantir’s valuation.”
The Denver-based company is expected to see sales jump 36% this year, followed by an expansion of 29% in 2026, according to the average of analyst estimates compiled by Bloomberg. That places Palantir among the fastest growing companies in the Nasdaq 100.
Valuation is the key sticking point on Wall Street. Fewer than a third of the analysts tracked by Bloomberg recommend buying the stock, an unusually low rate among companies with market capitalizations in excess of $300 billion. Based on the average price target, analysts see downside of 25% over the coming year, the weakest implied return in the Nasdaq 100 Index.
The institutional hesitancy has been overshadowed by heavy interest from individual investors. In terms of client orders, Palantir is consistently one of the most active securities on Interactive Brokers’ platform, according to the firm’s data. Vanda Research, which analyzes retail trading, ranks Palantir as the third-highest stock by net retail purchases, behind Tesla Inc. and Nvidia Corp., which are both substantially larger.
“Palantir trades at a ridiculous multiple, but welcome to the world of AI stocks,” said Louis Navellier, chief executive officer of Navellier & Associates, who owns the stock.
“The stock should be safe in the near term, since there’s certainly a need for cost-efficient intel and I don’t think the AI party will end soon,” he said. “Still, while the short sellers have gotten pretty quiet, the multiple means they’ll come back. They always do.”
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Nvidia Corp. shares rose to an all-time high on Wednesday, with the leader in artificial intelligence chips extending an advance that has cemented its position as one of the most valuable companies in the world.
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Earnings Due Thursday
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No major earnings expected
--With assistance from Carmen Reinicke.
(Adds stock move after market open in second paragraph)
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