CNBC’s Jim Cramer suggested Wall Street was too fixated on the high valuations of certain tech and speculative stocks, pointing to some of the reasons for Tuesday’s broader market decline. PalantirDespite strong financial results, the company posted a loss of nearly 8%.
“The bigger problem is that when asset managers are asked whether the market is too expensive, they immediately think of high-flying speculative stocks and high-growth artificial intelligence stocks, and so they are warning people to stay away from the entire asset class,” he said. “They’re not thinking about the other 334 stocks in the S&P 500 that are selling for less than 23 times P/E. That’s not outrageous.”
Falls in Palantir and other artificial intelligence companies contributed to Tuesday’s decline in stocks. S&P500 1.17% loss, Dow Jones Industrial Average 0.53% reduction and lots of high-tech elements Nasdaq Composite Down 2.04%. Palantir managed to beat expectations and provided solid guidance due to growth in its artificial intelligence business. But investors were widely concerned about the huge valuations of the tech giants that are taking the market to new heights.
Investors who viewed Palantir as a “North Star” were alarmed by the sharp decline after a strong quarter, Cramer said. As these investors questioned the overall market, their concerns caused “massive selling,” he continued.
Kramer suggested Palantir can be a difficult stock to classify, saying it straddles two different market segments. One focuses on technology and artificial intelligence, and the other focuses on speculative stocks. He noted that the data-driven software company is highly profitable, rapidly growing, and “is not easy to explain.” He listed a number of the company’s business sectors, including work as a defense contractor and as a consultant for companies looking to modernize and increase profitability.
For Kramer, it’s reasonable to think that there’s nothing wrong with Palantir and that it just needs to “cool down to grow to market capitalization.”
“Yes, there are certainly stocks that are visibly overvalued, and when you break them down, many of these valuations are justified, but some are not,” he said. “I think the Magnificent Seven is justified given the pace of growth going forward, and ultimately Palantir as well.”
