ARK's Exit and Morgan Stanley's Downgrade Send Palantir Shares Tumbling 8%

Palantir Technologies has experienced a tumultuous start to the year, with its share price spiraling down almost 8% earlier this week. The stock has come under pressure following notable sell-offs by Cathie Wood’s ARK Investment Management, which offloaded shares worth $15 million, effectively clearing out its position in Palantir. At its peak, Palantir accounted for over 5% of ARK's portfolio.

In addition, Morgan Stanley has issued a cautious note on Palantir, initiating coverage with an "underweight" rating due to concerns about the sustainability of its growth and current valuation. The investment bank set a price target of $60 for Palantir, representing a notable downside risk of approximately 25%. Such skepticism follows a stellar performance last year where the AI and data analytics company saw its stock surge by an astonishing 380%.

Morgan Stanley’s analysts argue that Palantir's market momentum and valuation are not justified given its over-reliance on government contracts, which pose income stability risks due to potential terminations or annual renegotiations. Furthermore, despite an impressive track record, the company faces growth challenges, intensified by substantial insider selling and potential downturn risks by 2025.

However, the analysts acknowledge that Palantir’s founder Peter Thiel maintains influential political connections, potentially safeguarding or even boosting government contracts. These factors underscore a mixed outlook for Palantir as the company nears potential inclusion in the Nasdaq-100 index, which could bolster inflows and mitigate downside pressures.