Palantir and Warner Bros. Discovery: The 2026 Growth Play

The rally in financial and tech stocks is anchored by a massive, secular spending cycle. The foundational driver is the hyperscalers' commitment to build out AI infrastructure, a cycle that is now entering a more selective phase. The scale is staggering: the world's largest cloud providers have pledged to spend more than $440 billion over the next 12 months. This isn't just a budget-it's a multi-year capital expenditure plan that is the direct engine for companies in data storage, semiconductors, and data center operators.

The consensus view is that this spending will continue to accelerate. Analyst estimates for 2026 capital expenditure by these AI hyperscalers have climbed to $527 billion, up from $465 billion at the start of the third-quarter earnings season. This upward revision trend has been consistent, with estimates historically falling short of actual spending. The implication is clear: the market is still underestimating the peak of this buildout, which creates a tailwind for the entire infrastructure chain.

Yet the market is becoming increasingly sophisticated in its allocation. The initial broad rally has given way to a rotation. As noted by Goldman Sachs, investors are rotating away from AI infrastructure companies where operating earnings growth is under pressure and capex spending is debt-funded. The warning is explicit: the market wants to see a clear link between capital expenditure and future revenue. This shift means that not all beneficiaries of the $500 billion cycle will perform equally. The setup is now about quality within the theme.

The bottom line is a growth engine with a peak in sight. The spending cycle is real and massive, but its sustainability is being tested. The coming quarters will reveal whether the current capex surge translates into durable earnings growth or if we are approaching a point where the infrastructure layer faces a slowdown. For investors, the thesis is to ride the wave of spending but to be selective, favoring companies where the investment is demonstrably linked to future profitability.

Palantir: Scaling the AI Platform with Extreme Valuation

Palantir's explosive growth in 2025 was a pure function of its AI Platform (AIP) scaling. The company's operational momentum is undeniable, with U.S. commercial revenue soaring 121% year-over-year to $397 million in Q3. This isn't just growth; it's acceleration, as the company closed 204 deals worth at least $1 million and saw total bookings hit a staggering $2.8 billion. The commercial segment now drives more sales than the U.S. government, a strategic pivot that reduces dependency and fuels a faster expansion path.

The financial story behind this adoption is compelling. Palantir's Rule of 40 score reached 114%, a powerful metric that combines its 63% revenue growth with a 51% adjusted operating margin. This shows the business is scaling profitably. Customer metrics reinforce the story: the client base grew 45% year-over-year to 911 clients, while net dollar retention hit 134%, indicating deep account expansion. For investors, this is the blueprint of a high-growth, high-margin software business in the AI era.

Yet, this operational excellence is priced to perfection. The stock's extreme valuation of 117 times sales (or a price-to-sales multiple of 109.9) makes it uniquely vulnerable. This multiple implies that every future dollar of growth is already reflected in the share price. The risk is twofold. First, any slowdown in AI adoption or a broader tech correction could trigger severe multiple compression. Second, the stock's recent pullback from its peak suggests the market is already pricing in a "healthy correction" for a company that has delivered jaw-dropping returns. As one analysis notes, this leaves little room for error.

The bottom line is a classic high-stakes setup. Palantir is executing its AI platform strategy with remarkable speed, but its valuation leaves no margin for misstep. For event-driven investors, the stock is a pure bet on the continued, flawless scaling of its commercial AI business. The catalyst is clear: sustained bookings and margin expansion. The risk is equally clear: the stock's price already assumes a flawless future.

Warner Bros. Discovery: A Pure Event Play on Media Consolidation

Warner Bros. Discovery's staggering 173% gain this year is a textbook event-driven rally, with no connection to operational improvement. The surge is a direct function of a high-stakes bidding war between Netflix and Paramount Skydance, which has dramatically lifted the stock's market value to $71.8 billion. This is a pure play on corporate restructuring, not a reflection of the company's underlying business health.

In reality, Warner Bros. Discovery has struggled. The company has incurred net losses in three of the past four quarters and faces persistent challenges in growing revenue. Its most recent quarterly report showed revenue of $9.05 billion, down 6% year-over-year, with a miss on both top and bottom lines. The stock's fate is now entirely decoupled from these fundamentals and is tied to a complex regulatory and financing battle. The company itself is the prize, not a performer.

The immediate catalyst is the board's decision on Paramount's $30-per-share hostile bid. The board has already rejected this offer, and a formal response urging shareholders to support the existing Netflix deal is expected imminently. This development, coupled with the recent exit of key equity backing from Paramount's bid, adds pressure to the takeover fight. The outcome will hinge on which proposal clears regulatory hurdles and secures financing, with the process expected to take up to two years.

The bottom line is that this is a high-risk, high-reward gamble on a deal. For investors, the stock's performance is a function of the bidding war's momentum, not the company's ability to generate profits. The rally has been spectacular, but it leaves the stock vulnerable to a sharp reversal if either deal collapses or regulatory scrutiny intensifies.

Forward Outlook: Catalysts and Risks for 2026

The momentum for 2026 will be determined by a clear divergence between secular trends and near-term event risks. For Palantir, the primary catalyst is the sustained adoption of its AI Platform (AIP). The company's 132% sequential increase in commercial total contract value and 121% year-over-year growth in U.S. commercial revenue show accelerating enterprise demand. The path forward hinges on converting this robust bookings pipeline into consistent, high-margin revenue growth. Any stumble in this execution would undermine the entire narrative of a profitable software transition.

For Warner Bros. Discovery, the catalyst is resolution. The stock's 173% gain this year is a direct function of the takeover saga. The immediate focus is on the board's recommendation, expected imminently, which will likely urge shareholders to reject Paramount's $30-per-share hostile bid in favor of the existing Netflix deal. The subsequent regulatory review, which could delay a closing by up to two years, will be the next major overhang. The stock's fate is now tied to the outcome of this corporate battle, not its own operational performance.

A key macro risk is a slowdown in hyperscaler capital expenditure. While analyst estimates for 2026 AI capex have risen to $527 billion, the growth trajectory is set to decelerate sharply from the 75% year-over-year pace seen in Q3. More critically, investor sentiment is already rotating away from pure infrastructure plays. The decline in average stock price correlation among large AI hyperscalers from 80% to 20% signals a more selective market. Companies where capex is debt-funded and not yet translating to earnings growth are being punished, while platform and productivity beneficiaries are gaining favor.

This rotation away from infrastructure into productivity is the broader market risk. It suggests the easy money from AI infrastructure spending may be fading. For the rally to continue, the market must identify and reward the next phase of beneficiaries-companies that can demonstrably boost economic productivity through AI automation. Until that shift becomes clear, the sector faces volatility as investors reassess which AI-related stocks are truly durable.