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What's going on everybody and welcome back to InvestQ. And we're going to be covering Palantir today. And Michael Burry um speaking on Palantir uh in a recent article that I saw that came out on September 21st uh at 4:30 a.m. Eastern time, Michael Burry is doubling down on Palantir on his Palantir bear case saying a lot of money still to be made shorting Palantir.
So, he's betting against the company, but Palantir just reported 93% year-over-year growth. They reported 149% growth in US commercial revenue and more than $1 billion in quarterly GAAP net income. Excuse me. Meanwhile, Palantir's trading uh is currently trading at $183.85 with a market cap of roughly $469 billion and a trailing price-to-earnings ratio near 156.
So, this is no longer a simple story about a weak business versus an optimistic market. It is a battle between extraordinary operating performance and evaluation that already assumes years of extraordinary execution. So, today we're going to be breaking down Michael Burry's Burry's argument, Palantir's latest results, the bull case, the bear case, and of course, what investors should realistically watch next.
And quick shout-out to Prophecy. Um it is an AI-powered stock research platform that helps investors analyze companies more efficiently. If you're interested in that, feel free to check out the second link in the description below. First off, let's put the price action into the recent price action to context because Palantir, it reached a 52-week low.
Its 52-week low is currently at $160.37 with the 52-week high at $207.52. And at where we're currently trading at now, at $184.31, that would say that we're roughly somewhere in the range of about 70 to 70 [snorts] 70 to 73% above that low, but still roughly 12% below the high. Again, it's roughly somewhere around that percentage point.
But anyways, that does tell us two things. First off, buyers have shown that they are willing to return aggressively when Palantir's growth reaccelerates. And second, the stock remains extremely volatile and a company can report excellent results and still experience sharp drawdowns when it when its valuations leave little room for disappointment.
Now, the rebound is constructive, but it does not prove that every valuation concern has disappeared or that the stock cannot retest lower lows. Now, let's separate Michael Burry's position from the headline surrounding it because Burry previously disclosed that he had opened an outright short position in Palantir and his criticism his criticism goes beyond the stock's current price and he has argued that Palantir is overvalued and has also challenged the company's broader business model and market narrative.
And more recently, he defended the bearish trade and said that there was still money to be made shorting Palantir. Now, this is a pretty serious opinion from a very well-known investor, but the thing is it is not proof that the stock must fall. We do not know Burry's exact current entry price. We don't know his risk controls or complete position details from these public comments, and a profitable trade during an earlier decline would also not automatically prove that Palantir's long-term business thesis is wrong.
The useful question is not whether investors should blindly follow Burry, it is whether the financial evidence supports his concerns about valuation and risk. And the strongest argument against a purely bearish view is Palantir's latest operating performance because Palantir second quarter revenue reached approximately $1.935 billion, which is up 93% year-over-year and 19% sequentially.
And US commercial revenue increased 149% to $764 million, US government revenue rose 90% to $809 million, and GAAP operating income was approximately $912 million, representing representing a 47% margin, and GAAP net income reached approximately $1.062 billion, and adjusted free cash flow was approximately $1.220 billion.
So, Palantir also reported a rule of 40 score of 155%, and these are not merely promises about a future opportunity. They are reported financial results showing rapid growth, strong profitability, and substantial cash generation. Now, regarding Palantir, the bull case is more than one quarter of revenue growth.
Palantir closed 220 deals worth at least $1 million during the quarter, including 73 deals worth at least $10 million and total contract value reached approximately $3.373 billion and US commercial remaining deal value increased 124% year-over-year to approximately $6.238 and management also raised full year guidance revenue guidance to between 8.150 and 8.158 billion dollars representing expected growth of approximately 82% and the central bull argument is that Palantir is becoming an operating system for enterprise and government artificial intelligence.
It's not merely a another company selling a crop selling access to a model. And if customers continue expanding their use of Palantir software today's enormous valuation could eventually be supported by much larger revenue and cash flow. But the keyword is eventually. Uh the keyword is eventually because the company it still has to execute at an exceptional level for years, not just a shorter term being quarter-over-quarter.
Now also we also arrive at the strongest part of the bear case being valuation because at roughly $182.50 per share Palantir's market value is approximately $469 billion and it's trailing PE ratio is near 156. Now that does not mean that the stock must decline, but it means investors are already paying for a very large amount of future growth and if revenue if revenue slows faster than expected, if we see weakness in margins, if we see any raises any rises in interest rates or investors assign lower multiples to software companies, the stock could fall even more what even more even though Palantir remains profitable.
So, don't also forget there is a dilution concern to monitor because Palantir reported approximately $265 million in stock-based compensation during Q2 and it's up 66% from the prior year period. That expense, it was manageable relative to the company's reported profit and cash flow. But it still matters because shareholders own a percentage of the business, not merely its headline revenue.
Now, the analyst data that you see on your screen from CNN Business, um it shows that just how wide the disagreements has become because it shows here that one consistent screen displayed a median 12-month target of or being near $210 and it has a high target of $250 and a low target of only $80. So, a separate 24/7 Wall Street model places target near $185.99 and rated the stock a hold.
And UBS meanwhile recently published a 250 $250 target. Now, these targets are not interchangeable. They may use different dates, assumptions, analyst groups, and valuation methods, but the important takeaway is the dispersion itself because reasonable analysts can look at the same company and reach dramatically different conclusions because small changes in long-term growth or valuation assumptions produce enormous changes in estimated value.
And price targets should therefore be treated as scenarios, not promises. And instead of trying to predict the next daily move, in my opinion, I believe investors should monitor five measurable developments. First off, watch whether total revenue growth remains exceptional as comparisons become more difficult.
Second, monitor US commercial growth and remaining deal value to determine whether enterprise adoption is still expanding. Third, follow operating margins and free cash flow because strong growth is more valuable when it continues producing real cash. Fourth, compare stock-based compensation and diluted share growth with revenue and earnings growth.
And finally, watch the price action around the recent range. Holding above the June recovery zone would be constructive, while a failure to reclaim the prior high could show that valuation concerns are limiting demand. And the most important evidence will come from future results. It will not come from one analyst target, and it will not come from one famous short seller or one week of price action.
So, my final assessment is that both sides uh of the debate Wait, the bull and the bear sides of the debate, they both have legitimate evidence because Palantir's business performance is exceptionally strong. And revenue, as we saw, is accelerating, and US commercial adoption is expanding, and margins are substantial.
You see that cash flow is positive, and that the balance sheet is strong. So, the thing is Michael Burry does not need Palantir to become a bad company for a bearish trade to work. Because at roughly 156 156 times trailing earnings, even a very good company can produce weak shareholder returns if future growth falls short of what the market already expects.
So, I'm going to be describing Palantir as a high-quality, high-growth AI business trading at a high-risk valuation. And for bulls, the confirmation would be sustained growth and continued margin strength and another major expansion in deal value. Now, for the bears, the bears, the confirmation would be slowing growth, multiple compression, dilution, or a failure to reclaim the prior high.
And the evidence does not justify blindly following Burry, but it also does not justify ignoring valuation. And if you did find this analysis helpful, please feel free to subscribe to Investopedia. Also, feel free to join the free Investopedia community and check out Prophecy through the links in the description uh in the through the second link in the description below, and in the pinned comment, second link in that comment as well.
And remember, nothing in this video is financial advice. Always verify the information independently and consider your own objectives and risk tolerance before making any investment decisions. So, opedia out. Stay safe, and I'll see you all in the next video.
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