Artificial intelligence (AI) is one of the biggest investment themes today. Big data analytics company Palantir Technologies (PLTR +3.49%) has emerged as a frontrunner in the AI realm, fending off intense competition from big-tech stalwarts. Shares of Palantir have soared more than 200% over the last year.
However, just last week, one of Palantir's co-founders, Peter Thiel, sold a little over 7 million shares, for a total sum of $178 million. Given Palantir's rock-solid performance and strong outlook, should this be a cause for concern?
Below is a breakdown of the mechanics of insider sales and a closer look at Thiel's move.
NASDAQ: PLTR
Key Data Points
What are insider sales?
The Securities and Exchange Commission (SEC) classifies anyone at a corporation who's a director, officer, or 10% owner as an insider. Peter Thiel is not only a co-founder of Palantir, but he's also chairman of the board of directors.
From time to time, insiders will buy or sell stock in their company. While these transactions typically garner a lot of scrutiny, they're often planned far in advance and sometimes happen on a set schedule.
The timing of Thiel's latest sale is what's likely raising eyebrows. Earlier this month, Palantir hosted an event called AIP Con. The live-streamed seminar showcased several new customers explaining how they use Palantir's AI software.
Investors learned about many new use cases for Palantir, and the event was viewed positively overall. But just days later, Thiel's sale took the spotlight.
There's more than meets the eye
Although Thiel's influence at Palantir is important, investors should realize he's also affiliated with many other companies. In fact, Thiel spends much of his time as a venture capitalist investing in start-ups. While there's almost no way to know, it's entirely plausible that Thiel trimmed his stake in Palantir to raise funds for additional investments.
Moreover, Palantir's stock has experienced new life after falling 65% in 2022, thanks to the euphoric narrative fueling anything related to AI. As the stock continues to recover from its bear-market lows, Thiel may have decided that now is a prudent time to take some gains as shares approach a two-year high. Palantir's valuation is definitely on the rich side: At recent prices, its price-to-sales (P/S) ratio was around 25, and its price-to-earnings (P/E) ratio was well above 200.
But the most important detail of all is that even though 7 million shares seems like a lot, it's a mere fraction of Thiel's overall ownership stake. According to the Form 4 filed as part of the sale, Thiel still holds roughly 180 million shares of Palantir -- leaving him with nearly 7% ownership of the entire company after the sale.
Should investors be worried?
Given the details above, I'm not worried about Thiel's sale. He still owns a meaningful portion of Palantir, and 7 million shares barely moves the needle in his overall equity stake.
My hunch is that he may be liquidating a portion of his Palantir position and redeploying the funds into other investments. Alternatively, given the uncertain nature of the economy as inflation continues to linger, perhaps Thiel simply wants to hoard some cash. Should this be the case, he appears to be in good company with that strategy.
What I can say with some degree of confidence is that Thiel hasn't decided Palantir is no longer worth the investment. Given AI is in such early innings, it would be perplexing to watch him sell out of a business he spent two decades helping to build.
I see this stock sale as no more than a nugget, if even that. Investors in Palantir shouldn't allow the moves of insiders to dictate their own actions. While these events are worth monitoring, insiders can sell their shares for lots of reasons that have nothing to do with the business and everything to do with their own financial plan. Investors don't need to panic.
