To The Moon

$Palantir Technologies Inc.(PLTR)$ is set to report its Q3 earnings today, November 4th, and investors are watching closely. With a year-to-date rally of 144%, Palantir’s stock has been one of the tech sector’s standout performers, outpacing many in its industry. The company’s forecasted Q3 revenue of $697 million to $701 million signals a robust year-over-year growth of 25-26%. But with such a substantial run-up, is there more room for upside, or is a correction due?

Let’s analyse Palantir’s setup going into earnings and consider two trading ideas. The central question here is whether Palantir will beat estimates and extend its rally, or fall short, leading to a potential pullback. Here’s my take on what to expect and two ways to play this earnings event.

The Bull Case: Momentum and Strong Business Tailwinds

Over the past year, Palantir shares have surged nearly 181%. This climb is underpinned by its increasing revenue, strategic partnerships, and entry into the artificial intelligence (AI) space—capturing the market's attention. Palantir’s partnerships with large enterprises and governments across the globe have led to a steady revenue stream. Additionally, the company’s expansion into the AI ecosystem through its AIP (Artificial Intelligence Platform) positions it well to capitalize on the AI boom.

Given the momentum and the possibility of revenue acceleration from new AI applications, Palantir might indeed surprise on the upside. A “beat” scenario could be driven by:

• Increased demand in AI-driven products across both commercial and government sectors.

• Higher-than-expected revenue guidance if management expresses confidence in the forward-looking potential of their AI and analytics offerings.

If the Q3 numbers beat expectations and forward guidance improves, expect PLTR to potentially breach the $45 mark in the near term, with room to run toward $50 in the medium term, assuming the AI theme continues to drive growth.

The Bear Case: Valuation Concerns and Mixed Analyst Sentiment

Palantir’s current valuation has sparked concerns among analysts. With the stock trading at elevated multiples, some see it as overvalued, especially in light of its slower path to profitability in prior quarters. Analysts remain divided, with skepticism fuelled by:

• Palantir’s profitability concerns: Though the company is scaling, it is still grappling with high expenses.

• Macroeconomic uncertainties: A potential slowdown in global spending could impact its growth, especially on the commercial side.

If the company misses expectations or delivers underwhelming guidance, we could see a quick retracement to around $35. Given the stock’s high beta, any earnings disappointment may trigger a sharper-than-average decline.

Trading Idea 1: Earnings Straddle for a Big Move (For a Neutral Stance)

A high probability, low-risk trade ahead of Palantir’s earnings is an options straddle. The setup allows you to capture a significant move in either direction—whether Palantir rises or falls post-earnings. Here’s the logic:

• Buy a straddle option, purchasing both a call and a put at or near the current strike price. For example, buying a $42 call and a $42 put allows for gains if Palantir sees a major swing post-earnings.

• This strategy benefits from the expected post-earnings volatility, as any substantial deviation from expected results—whether it be an earnings beat or miss—can lead to large gains on one side of the trade.

• Risk profile: Limited to the premium paid for the options, with the upside potential tied to the magnitude of Palantir’s price move.

If you expect Palantir’s earnings to result in a big move, but aren’t sure which direction it will go, this straddle setup can capture gains from both scenarios.

Trading Idea 2: Long Position with Stop-Loss to Ride Potential Upside (For a Bullish View)

If you’re bullish on Palantir’s earnings and expect the company to beat revenue targets and provide positive guidance, a straightforward long position with a disciplined stop-loss strategy can be highly effective. Here’s the setup:

1. Buy shares at market price close to $42.

2. Set a stop-loss at $37, to protect capital in case of an earnings miss.

3. Price target: If Palantir exceeds expectations, look for a price target of $45, with a potential move toward $50 in the medium term if positive AI developments continue to bolster the narrative.

This setup allows you to capitalize on further upside while managing downside risks. Given Palantir’s significant AI exposure and its potential for growth, this strategy allows for an attractive risk-reward profile.

My Target Price and Final Outlook

To sum up, Palantir’s earnings will likely be a turning point. For investors with a higher risk tolerance, a straddle option is a compelling strategy, while a stop-loss-managed long position might appeal to those with a more bullish outlook on Palantir's AI growth prospects. As earnings approach, prepare for volatility—this release will either reinforce Palantir’s AI-driven growth narrative or validate concerns around its lofty valuation.