Palantir in a sinking ARKK
"Paper handing" leads to ownership shift.
Editor: Emanuele20x
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In this article:
Oops, I “Paper handed”.
Power shift: investing is a zero-sum game;
Your stock is now my stock;
One step back.
Palantir is mainly a defense contractor playing a crucial role in the Ukraine-Russia war. However, markets are not giving credit for this, as Palantir is still seen as an “unprofitable growth tech company” (Palantir: Data is the New Bullets, but Nobody Cares).
As a consequence, PLTR 0.00%↑ stock is heavily correlated with Cathie Wood's ARKK 0.00%↑ fund despite Palantir not being included in Ark's portfolio since March ‘22.
Palantir is down ~56% YoY, exactly like ARKK.
ARKK can be seen as the expression of the 2020 speculation in a similar way Nasdaq was during the dot.com bubble in 2000-2002.
ARKK does not include only unprofitable growth tech companies, however, it has become the benchmark for the most speculative corner of the market.
For a comprehensive overview of ARKK, I highly encourage you to refer to the excellent article just published by @Maverick_Equity.
Since most investment flows, nowadays, are driven by passive investments, once a correlation is established and a company is labeled in a certain way it is very difficult to change things unless major developments occur.
Palantir is mainly a defense contractor tipping the balance of the war. However, until that is not fully reflected in solid Revenue growth, its “equity story” will hardly change and therefore, is set to keep tracking ARKK.
Fortunately, there are precious hints in Palantir’s financials that give insight into a brighter future (Palantir: we can see the future).
Oops, I “Paper handed!”
The interest in Palantir and ARKK, measured by Google Searches, peaked at the same time and dropped together afterward as interest rates rose.
With PLTR and ARKK rising, interest skyrocketed as well. Then the inverse happened.
Power shift: investing is a zero-sum game
With the markets dropping, retail investors basically sold all the stocks accumulated in the previous years.
The retail runway has been particularly significant in Tech companies.
The fear in retail can be seen also by the IMX index, designed to indicate the sentiment of retail investors.
Retail pessimism is similar to that of the 2020 bottom.
With the retail sentiment dropping, one would expect a popular ETF among retail investors, such as ARKK, would suffer from significant outflows. Is this the case?
Despite the huge losses (ARKK dropped ~65% in 2022), the fund received $1.6bn of inflows.
Welcome to the ownership shift.
Your stock is now my stock
Retail investors abandoned the ark as prices dropped. Institutional investors gradually put money into ARKK.
This ownership shift is also happening with Palantir, the percentage of institutional ownership is now ~34%, well above the ~20% of 2021.
Retail investors “paper handed,” institutional investors bought the dip.
What we have been watching is the classical “smart money” taking advantage of the “dumb money.”
By being aware of these dynamics we can avoid having “weak hands.”
One step back
Between 2000 and 2002, it took about 900 days for the Nasdaq to bottom, but we all know that this was the genesis for the now largest companies in the world.
ARKK, after ~700 days is now ~80% below its peak.
Will the current shock help the future big tech companies emerge? Is Palantir a future big tech company?
Stay tuned.
Yours,
Arny
View expresses are my own and do not represent Financial Advice in any way.
I own (many) PLTR stocks.
Great take ... very interesting ! Thank you!