Cathie Wood Takes Profits in Palantir. Should Investors Follow Suit?

Famed investor Cathie Wood, the CEO and chief investment officer of Ark Invest who is best known for her high-flying Ark Innovation (NYSEMKT: ARKK) exchange-traded fund (ETF), was recently selling shares of Palantir Technologies (NASDAQ: PLTR). Wood originally bought the stock back in 2021 but then exited the position in early 2022. Through the ETF, she once again established a position in the stock in May 2023. Wood's ETF has been steadily selling down the stock since September 2024, although it still makes up just over a 5% position in her fund and is her fifth-largest position.

Wood's selling follows the pick-up in selling by Palantir executives and insiders who began much more aggressively selling the stock in September. Palantir CEO Alex Karp has been one of the most aggressive sellers over this period, exercising options and immediately selling shares on six different occasions. Over this stretch, he has sold $1.86 billion worth of shares. Chairman Peter Thiel, meanwhile, sold over $1 billion worth of shares later in September and early October. Numerous other executives and directors have also been selling shares over this period.

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Let's take a closer look at Palantir to see if investors should follow suit.

Palantir is an AI leader

Palantir really established itself as an artificial intelligence (AI) leader in 2024. It originally started as a data gathering and analytics company that became one of the U.S. government's most important software vendors. The government used its platform for mission-critical tasks such as monitoring terrorists and tracking COVID-19 cases during the pandemic.

With the introduction of its AI platform (AIP), the company then turned its sights on helping commercial customers with their own use cases. Through its use of AIP bootcamps, Palantir would run workshops to demonstrate how its platform could be used for different use cases within companies while also offering initial onboarding and training. This customer acquisition strategy has had a lot of success, with the company increasing its U.S. commercial revenue by 54% year over year last quarter and its U.S. customer count by 77%.

Palantir's early success with AI stems from the company's work to apply it to real-life use cases. Instead of focusing on building better AI models, Palantir has turned its attention to the applications and workflow layers of AI where it deals with logic and functionality in order to implement the actions needed to complete tasks. The company credits its work in ontology, where its systems pair digital assets with their real-world counterparts, allowing Palantir AIP to become an organization's AI operational system. Its platform then has tools to rigorously test to make sure its solutions are getting the necessary outcomes to be applied to real-world use cases.

Thus far, much of Palantir's early success with commercial customers has been with proof-of-concept work. It will have a big opportunity as it begins to move these early customers from the prototype stage to production.

The company has also begun to see revenue pick up at its largest customer, the U.S. government, as it begins to embrace AI. The company announced several large U.S. government contracts during the year, and its U.S. government revenue began to accelerate last quarter to 40% growth.

Image source: Getty Images.

So why has everyone been selling Palantir stock?

2024 was a great year for Palantir stock. It was added to both the S&P 500 and Nasdaq-100 indexes during the year as its stock skyrocketed.

However, the stock's performance also has led it to trade at a pretty stratospheric valuation. Based on 2025 analyst estimates, Palantir trades at a forward price-to-sales (P/S) ratio of 36.5 times. Notably, its overall revenue growth was 30% last quarter, and its international revenue has lagged. To put that in perspective, at the height of software-as-a-service (SaaS) multiples in 2020 and 2021, these stocks traded at an average of approximately 20 times forward sales, with growth of more than 30%.

PLTR PS Ratio (Forward 1y) data by YCharts

As such, it is safe to say that Palantir stock's value based on current revenue growth projections is quite frothy. With a 300% gain over that past year even after its pullback to start 2025, it would be a wise move for investors to follow the lead of Palantir's own executives and take some well-earned profits.

At current levels, the stock does not have much room for error. For the stock to work from here, Palantir will need to see a nice acceleration in revenue growth going forward, which is not out of the question if it can successfully move commercial customers from proof-of-concept to production and see international revenue pick up.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.