Palantir: A Meme Stock? 200 Years of Beating the Market;Tech Layoffs, 2024 Edition
British Railway Boom Revisited; Six Investment Gurus love this stock
In Today's Edition:
=> Palantir: The Ultimate Meme Stock?
=>Beating the Market Since 1800
=>Tech Layoff, 2024 Edition
=> Railway Boom Revisited
=>Six Investment Gurus Love Global Guru Premium Pick
All this and more. Keep reading.
I. Is Palantir the Ultimate Meme Stock?
Here’s one litmus test..
Palantir Technologies Inc. (PLTR)—alongside Tesla (TSLA)—is one of two stocks with its own dedicated Substack publication.
Not even the great Nvidia (NVDA) can boast the same.
As the dust settles from Palantir’s meteoric rise, investors question whether the data analytics firm can live up to its lofty valuation.
With a 257% stock run-up since December 2022 and its recent inclusion in the S&P 500, Palantir's future hangs in the balance between its promising government contracts and evolving commercial segment.
Key Points
• Palantir's government business boasts strong competitive advantages and sticky customer relationships. The company's software has become indispensable in modern combat, helping U.S. allies in conflicts across Europe and the Middle East.
• While the commercial segment is growing, it faces challenges matching the success of the government sector. Palantir's AI platform launch aims to power future growth, but it enters a crowded market with established competitors.
• Palantir's current valuation is 25 times its expected sales over the next 12 months. That’s a nosebleed level compared to the multiple of about 10 for software companies in the S&P 500. This premium valuation demands sustainable and rapid growth.
• The company's unusually high proportion of retail investors, with roughly half its available shares owned by individuals, sets it apart from typical S&P 500 companies. This devoted fan base has been both a source of strength and volatility.
Why It Matters
Unlike other meme stocks like AMC Entertainment Holdings Inc (AMC) and GameStop Corp (GME), Palantir has emerged as a significant player in the tech industry, gradually establishing itself as a worthy rival to the Magnificent Seven.
Palantir's journey from a niche government contractor to a mainstream S&P 500 company underscores the critical role of its ability to balance government success with commercial expansion. This strategic balance will be key to its long-term viability and to justify its premium valuation.
II. Beating the Market Since 1800
Six Perennial Strategies
Imagine what the world looked like in the year 1800.
John Adams held office as the second president of a young United States of America.
Electricity, the telephone, air travel, and antibiotics had all yet to be invented.
And the average life expectancy hovered between 30 and 40 years.
A trio of Dutch researchers at investment group Robeco examined data going back over 200 years to identify a handful of investment strategies that have consistently beaten the market.
Key Points
Here are the six investment strategies that have both stood the test of time and consistently outperformed the market.
1. Trend Following
“Buy what’s going up… and sell what’s going down.” This commonsense approach was consistently the best-performing factor across all markets.
2. Momentum
A close cousin of trend following, momentum focuses on investing in assets that perform well relative to others.
3. Value
Cheap stocks outperform expensive stocks over time. This is the basis of value investing, as developed by Benjamin Graham in Security Analysis.
4. Seasonality
Certain asset classes perform differently at different times of the year. Notably, you can make most of your money in the stock market between November and May.
5. High Yield
Investing in higher-yielding assets makes you more money than investing in lower-yielding assets.
6. Low-Risk Assets
Investing in low-risk assets delivers the highest returns over time. This finding directly contradicts the idea that high risk equals high returns. In a portfolio of investments, defensive stocks beat out speculative lottery tickets.
Why This Matters
You often hear about the importance of diversification in investing.
Normally, this means spreading your investments across asset classes like stocks, bonds, and commodities.
But Robeco’s analysis reminds us that diversifying our investments across a wide range of strategies is just as important.
III. Tech Layoffs, 2024 Edition
The High Price of the AI Pivot
The tech industry is experiencing a seismic shift as major players like Dell, Intel, and Tesla announce massive layoffs. These cuts, affecting tens of thousands of employees, are part of a broader trend toward AI-driven restructuring and cost-cutting measures.
Key Points
Dell's unprecedented downsizing
Dell is cutting up to 26,000 jobs, potentially reducing its workforce to under 100,000. This makes it the largest layoff in the company's history. Driven by an AI-first restructuring strategy, more cuts are expected. This bold move signals Dell's commitment to repositioning itself in an AI-dominated market.
Intel's struggle and strategic pivot
Intel is slashing 15,000 jobs, or 15% of its workforce, as it grapples with significant losses in its foundry business. The company's share prices have plummeted to levels not seen since 1997. Intel's struggles stand in contrast to the fortunes of its rival Nvidia, which has seen substantial revenue growth from its AI segment.
Tesla's response to market pressures
Tesla has cut 14,500 jobs in two rounds, reflecting slowing demand and increased competition, particularly in the Chinese market. Tesla's vehicle deliveries have fallen for the first time in nearly four years, highlighting the constant pressure to innovate and adapt.
Industry-wide trend
The layoffs at Dell, Intel, and Tesla are part of a larger pattern in the tech sector. Other major companies like Cisco, SAP, and PayPal have also announced significant job cuts, indicating a widespread reevaluation of workforce needs in light of AI advancements and economic pressures.
Why It Matters
These layoffs signal a fundamental shift in the tech industry's approach to AI and automation. As companies pivot towards AI-driven strategies, traditional roles are being reevaluated and restructured. This trend is reshaping the skills and competencies required in the future tech workforce.
My prediction?
The tech industry will look very different 20 years from now than it does today.
IV. Railway Boom Revisited
Is AI History’s Biggest Bubble?
The AI boom of today bears striking resemblances to the British railway mania of the 1840s.
Both periods saw massive capital inflows into transformative technologies, igniting grand visions of societal change and a brighter future.
However, as the history of financial manias shows, unbridled enthusiasm can lead to overinvestment and massive losses for investors.
The question arises…
Are we witnessing another case of irrational exuberance?
Or is this time truly different?
Key Points
The scale of investment
AI spending will reach $1 trillion annually by 2027. That figure is comparable to the railway mania's investment of 40% of the UK GDP over a decade. This staggering level of investment echoes the Victorian era's commitment to rail infrastructure and the belief in AI's transformative impact.
Overcapacity concerns
Just as the 1840s saw multiple competing railway lines built between cities, the danger of overcapacity in AI infrastructure looms. The rapid build-out of AI capabilities may outpace actual demand, and investors may soon feel they are throwing good money after bad.
Investor behavior
Both eras feature intense speculation, with investors often making decisions based on pe-in-the-sky measures rather than traditional valuation metrics. This exuberance can lead to inflated asset prices and unrealistic expectations, which in turn can lead to a market collapse.
Market concentration
Like the railway mania, the AI boom is dominated by a few companies. The "Magnificent Seven" tech giants account for a disproportionate share of market gains, reminiscent of the railway companies that dominated Victorian-era stock markets.
Technological uncertainty
While AI's potential is vast, its practical applications and how it will make money are unclear. This uncertainty mirrors the early days of railways when the full impact on commerce and society was still in the future.
Why it Matters
AI undoubtedly holds transformative potential. However, the railway mania of the 1840s serves as a crucial lesson, equipping us with the knowledge to navigate the risks of overinvestment and unrealistic expectations.
Understanding historical parallels is not just a story; it's a powerful tool that can help investors navigate the current AI landscape more prudently.
5. One Recommendation
Six Investment Gurus love this stock
Global Guru Premium subscribers receive a stock recommendation every other week via email and on the Global Guru Premium tab on The Global Guru website.
Global Guru Premium recommendations use the same thorough methodology I use for my Microcap Moonshots investment service.
This week’s recommendation
Earns a solid 96/100 rating based on a combination of quality, value, and momentum factors
Boasts a 96% buy ranking based on the average of 13 technical indicators.
Has impressive profitability metrics, with an operating margin of 43.22%, a return on capital of 33.8%, and a return on equity of 43.1%.
Highlighted by six different Investment Guru screens.