In the third quarter, two billionaire-led hedge funds sold Palantir Technologies (PLTR 5.98%) and bought Circle Internet Group (CRCL 3.96%), a fintech company that held its initial public offering (IPO) earlier this year.
- Israel Englander's Millennium Management sold 4.6 million shares of Palantir, reducing its position by 91%. The hedge fund also added 500 shares of Circle, increasing its stake by 3%.
- David Shaw's D.E. Shaw & Co. sold 6.4 million shares of Palantir, reducing its position by 41%. The hedge fund also added 33,100 shares of Circle, starting a new position.
Neither hedge fund has a large position in Circle. However, the trades are still interesting because several Wall Street analysts believe the stock is deeply undervalued at its current price of $69 per share.
- Peter Christiansen at Citigroup set his target price at $243 per share, implying 250% upside.
- Joseph Vafi at Canaccord Genuity set his target price at $247 per share, implying 258% upside.
- Jeff Cantwell at Seaport Research set his target price at $280 per share, implying 305% upside.
Here's what investors should know about Palantir and Circle.
Image source: Getty Images.
Palantir Technologies: The stock Millennium Management and D.E. Shaw sold
Palantir develops analytics software that lets commercial and government clients integrate data into an ontology, a real-time digital twin that supports decision-making. The company also provides an adjacent artificial intelligence (AI) platform that serves as a large language model orchestration tool, which lets developers to integrate generative AI into business processes and applications.
Palantir delivered another exceptional financial performance in the third quarter, beating estimates on the top and bottom lines. Revenue increased 63% to $1.1 billion, the ninth straight acceleration. And non-GAAP net income jumped 110% to $0.21 per diluted share. Management also raised full-year guidance, forecasting a 53% increase in revenue for 2025.
Yet Israel Englander and David Shaw are not the only hedge fund managers to turn bearish on Palantir. Michael Burry, who famously bet against the subprime mortgages that led to the 2008 financial crisis, recently disclosed a sizable short position in Palantir: Two-thirds of his $1.4 billion portfolio is allocated to Palantir put options.
Palantir CEO Alex Karp has accused short sellers of attempting to manipulate the market, though he himself has sold more than $2 billion in stock over the past two years. I believe the bearish sentiment can be attributed to valuation. Palantir trades at 102 times sales, the most expensive multiple in the S&P 500 by a wide margin. The next closest company in the index is AppLovin, at 32 times sales.
Here's the big picture: Palantir is a key player in the AI platforms market, which is projected to expand quickly in the coming years. But shares trade at a very expensive valuation that leaves little room for long-term upside. Investors should ignore their fear of missing out and steer clear of this particular AI stock until it trades at a more reasonable price.
NASDAQ: PLTR
Key Data Points
Circle Internet Group: The stock Millennium Management and D.E. Shaw bought
Circle is the fintech company that issues EURC and USDC, stablecoins whose values are tied to the European euro and the U.S. dollar, respectively. EURC is the largest euro-denominated stablecoin that is compliant with European regulations, and USDC is the second largest stablecoin overall. Only Tether has a larger market value, which is another way of saying there are more Tether tokens in circulation.
However, JPMorgan Chase analysts say Circle has an edge. "USDC's transparent reserve management and regular audits make it more trustworthy among institutional investors and other regulated entities," analysts wrote. "Its compliance with frameworks like the Markets in Crypto-Assets (MiCa) regulation in Europe sets it apart from competitors, making USDC the preferred stablecoin for financial institutions."
The stablecoin market is currently worth about $310 billion. Collectively, EURC and USDC account for about 25% of that total. Jeff Cantwell at Seaport estimates the market will eventually hit $2 trillion, and Bernstein analysts think the market will reach $4 trillion in the next decade, meaning the value of circulating stablecoins may increase as much as twelvefold in the future.
Circle is well positioned to benefit, especially because of its recent push into payments. The Circle Payments Network leans on blockchain to make transactions faster and cheaper and addresses use cases like supplier payments, retail purchases, and employee payroll. Since its launch in May, Circle has enrolled 29 financial institutions, and it has another 500 interested parties in the customer pipeline.
Looking ahead, Circle expects the volume of circulating USDC to increase by 40% annually for the foreseeable future. In turn, Wall Street estimates revenue will increase at 33% annually through 2027. That consensus forecast makes the current valuation of 6.5 times sales very reasonable. Investors with a time horizon of at least three years should consider buying a small position today.
