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Pullback of Previously Hot Tech Stocks: Tempus AI (-13%), Palantir (-10%), and AppLovin (-11%)

DennisThursday, Feb 20, 2025 3:22 pm ET
3min read

The recent pullback in high-flying tech stocks such as Tempus AI, Palantir Technologies, and AppLovin reflects a confluence of valuation concerns, technical overextension, and broader market dynamics. While these companies have demonstrated robust operational performance and growth in artificial intelligence (AI)-driven sectors, their rapid stock price appreciation has raised questions about sustainability. This report examines the factors driving the correction, analyzes company-specific risks, and evaluates the macroeconomic landscape influencing investor behavior.

Sector-Wide Pressures and Macroeconomic Context

The technology sector has faced renewed volatility as key indices like the Invesco QQQ Trust (NASDAQ: QQQ), which tracks the Nasdaq-100, retested highs last seen in mid-December 2024. At that time, the Federal Reserve’s signal of fewer-than-expected rate cuts for 2025 triggered a 4% intraday swing in the QQQ4. On February 14, 2025, BTIG’s chief market technician, Jonathan Krinsky, warned that the resurgence of the QQQ to these levels—termed the “scene of the crime”—often precedes reversals, particularly when coupled with overbought technical conditions. Meta Platforms (NASDAQ: META), a major QQQ component, has contributed significantly to the index’s rebound, but its potential correction could exacerbate downward pressure on tech stocks broadly

This macroeconomic backdrop has heightened sensitivity to valuation metrics, particularly for companies trading at historically high price-to-earnings (P/E) ratios. The Fed’s cautious stance on rate cuts, combined with stretched equity valuations, has prompted investors to reassess positions in growth-oriented tech names.

Tempus AI: Balancing Growth and Valuation Concerns

Strategic Expansion and Financial Performance

Tempus AI (NASDAQ: TEM) has emerged as a leader in precision medicine, leveraging AI to analyze clinical and molecular data. The company’s acquisition of Ambry Genetics for $600 million ($375M cash, $225M stock) on February 3, 2025, expanded its genetic testing capabilities into hereditary cancer screening, pediatrics, and rare diseases. Preliminary fiscal 2024 results showed 30% year-over-year revenue growth to $693 million, with Q4 2024 revenue reaching $200 million (+35% YoY)1. These figures underscore Tempus AI’s momentum in commercializing its AI-driven diagnostics platform.

However, the stock’s 160% surge in February 2025—reaching a 52-week high of $91.45—has raised concerns about overvaluation. Despite improving adjusted EBITDA, Tempus AI remains unprofitable, with a negative P/E ratio of -17.33 and an EPS of -$5.165. Analysts at William Blair downgraded the stock from Outperform to Market Perform on valuation grounds, noting a consensus price target of $58.55 (35% below current levels)1. Insider selling by C-suite executives totaling $12.5 million in early February further clouded sentiment1.

Technical and Market Sentiment

Technically, Tempus AI’s Relative Strength Index (RSI) of 89 as of February 14 signaled extreme overbought conditions, while its Average True Range (ATR) of 7.50 highlighted elevated volatility5. The stock’s proximity to its 52-week high, coupled with its upcoming earnings report on February 24, 2025, has created a “sell the news” environment. Investors appear to be locking in gains ahead of potential guidance revisions or margin pressures tied to the Ambry integration.

Palantir Technologies: Valuation Disconnect Amid Operational Strength

Growth Trajectory and Financial Metrics

Palantir Technologies (NYSE: PLTR) has capitalized on rising demand for its AI-powered data analytics platforms, particularly in government and commercial sectors. Q4 2024 revenue grew 36% YoY, driven by 64% growth in U.S. commercial sales and 45% growth in U.S. government contracts2. The company’s expansion into healthcare and energy verticals has diversified its revenue streams, with management emphasizing long-term contracts and high customer retention rates.

Despite these strengths, Palantir’s valuation has become a focal point for skeptics. The stock’s P/E ratio of 617.84—based on a closing price of $117.39 on February 12, 2025—far exceeds industry peers2. A discounted cash flow (DCF) analysis suggesting an intrinsic value of $3.66 per share (vs. market price of $117.39) underscores the magnitude of the disconnect2. While bulls argue that Palantir’s AI moat justifies premium pricing, bears highlight that even aggressive growth assumptions struggle to justify current levels.

Technical Indicators and Analyst Outlook

Palantir’s technical posture as of mid-February 2025 revealed vulnerabilities. The RSI of 82 indicated overbought conditions, while the stock’s 50-day moving average ($78.62) diverged sharply from its price, signaling a potential mean reversion2. Analysts maintained a consensus “Hold” rating, with price targets ranging from $35 to $105—all below the February 12 closing price. The lack of upward revisions to targets despite strong operational performance suggests skepticism about sustainability.

AppLovin: Divestiture and AI-Driven Growth Amid Profit-Taking

Operational Highlights and Strategic Shift

AppLovin (NASDAQ: APP) has emerged as a standout performer in the ad-tech sector, with its AI-powered AXON platform driving a 43% YoY revenue increase to $1.37 billion in Q4 20243. The company’s decision to divest its apps division—announced alongside earnings on February 13, 2025—aims to sharpen focus on high-margin software solutions. This pivot resonated with analysts, as Wolfe Research and Oppenheimer raised price targets to $550 and $560, respectively.

Valuation and Market Response

Despite bullish fundamentals, AppLovin’s 700% surge in 2024 and additional 30% gain post-earnings have triggered profit-taking. The stock’s forward P/E of 58 (based on 2025 earnings) remains elevated compared to peers like Trade Desk (NASDAQ: TTD). While the company’s guidance of $1.36–$1.39 billion in Q1 2025 revenue (+32% YoY midpoint) exceeded expectations, the “sell the news” dynamic has prevailed3. Technical indicators, though less extreme than Tempus AI or Palantir, suggest consolidation is likely after parabolic moves.

Conclusion: Navigating the Tech Pullback

The February 2025 pullback in Tempus AI, Palantir, and AppLovin reflects a market reassessment of growth stock valuations in a higher-for-longer rate environment. While company-specific factors vary, common themes include:

Overbought Technical Conditions: Extreme RSI levels across all three stocks signaled exhaustion among buyers.

Valuation Stretch: Disconnects between price and fundamental metrics (P/E, DCF) prompted profit-taking.

Macro Pressures: The Fed’s cautious stance and sector-wide rotation from tech exacerbated declines.

Investors should monitor upcoming catalysts such as Tempus AI’s earnings (February 24) and Palantir’s government contract renewals for directional clues. While long-term growth narratives remain intact, near-term volatility is likely to persist as markets digest gains and recalibrate risk premiums. A selective approach—prioritizing companies with visible paths to profitability and reasonable valuations—may mitigate downside risks in this uncertain climate.

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Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.
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