Investor says that enthusiasm for massive data company might waver in 2026

Key Concepts

• Palantir: A data analytics company with a high Price-to-Sales ratio, recently sold off by Stanley Druckenmiller.
• AppLovin: A mobile advertising and software development company currently under SEC investigation, shorted by Andrew Laft.
• Rigetti Computing: A quantum computing company considered a “science project” with a high valuation and limited technological progress, also shorted by Laft.
• Price-to-Sales (P/S) Ratio: A valuation metric comparing a company’s stock price to its revenue.
• Law of Large Numbers: The principle that as a sample size increases, the results obtained will tend to converge towards the expected value.
• Software as a Service (SaaS): A software distribution model where applications are hosted by a provider and made available to customers over the internet.
• AI Bubble: The potential for an unsustainable surge in the valuation of companies related to Artificial Intelligence.

Investment Perspectives on Palantir, AppLovin, and Rigetti: An Analysis with Andrew Laft

The discussion centers around the investment outlook for three technology companies – Palantir, AppLovin, and Rigetti – with insights from research founder Andrew Laft, following the revelation that billionaire investor Stanley Druckenmiller sold his entire stake in Palantir.

Palantir: Overvaluation and Potential Downside

The conversation begins with Druckenmiller’s decision to liquidate his nearly 770,000 shares of Palantir (PLTR) between July 2024 and March 202E. Laft interprets this as a significant signal, stating, “What does Stanley Druckenmiller know? Obviously, meaning he sold his shares. He’s one of the greatest investors of all-time.” While acknowledging Palantir as a “wonderful company” with a strong CEO, Alex Karp, Laft believes the current valuation is unsustainable.

Specifically, Palantir currently has a Price-to-Sales (P/S) ratio of 126, which Laft contrasts with NVIDIA’s 40 times sales. He anticipates a potential correction, suggesting the stock could be “cut in half” if it reverts to a 40x sales multiple. Laft believes the growth driving Palantir’s current valuation is dependent on the enthusiasm surrounding Karp and the Foundry platform, but questions its longevity, predicting a potential “phase out” in 2026. He argues that the company will soon encounter the “law of large numbers” and face increased competition in the big data analytics space. He suggests a fair valuation is even lower than 40 times sales, citing limitations of big data and the cyclical nature of technology.

AppLovin: Concerns Regarding Sustainability and Practices

Shifting to AppLovin (APP), Laft reveals a short position, characterizing it as a “different animal” than Palantir. He expresses a lack of trust in the company, stating, “I don’t trust AppLovin, I have to say.” His skepticism stems from AppLovin’s attempt to compete with industry giants Google and Meta, questioning its ability to maintain its current efficiencies. He highlights concerns about the company’s gross margins, cost per customer, and ongoing SEC investigation into privacy issues and user acquisition practices, suggesting potential manipulation of the Apple system. Laft believes AppLovin’s “best days are in the rearview mirror” and advises skepticism towards its reported numbers.

Rigetti Computing: A “Science Project” with Inflated Valuation

Laft is particularly critical of Rigetti Computing (RGTI), labeling it a "$7 billion science project." He points out the company’s limited technological progress despite a significant increase in stock price (from $0.90 two years prior). He attributes the valuation to hype surrounding quantum computing and an influx of capital, stating, “There’s nothing there at Rigetti.” He contrasts Rigetti with Inflection, noting that Rigetti and DWAVE Quantum are “over-hyped stocks” unlike Palantir or AppLovin. Laft is shorting Rigetti, but also holds a long position in Inflection.

Software as a Service (SaaS) and the Potential for an AI Bubble

The discussion briefly touches on the Software as a Service (SaaS) model, with Laft suggesting that established companies like Salesforce and Workday are facing challenges. He argues that the SaaS business model, reliant on employee numbers and associated subscriptions, is becoming a “zombie business model” as companies reduce their workforce. He links this to the broader question of whether the current market is experiencing an “AI bubble,” implying that valuations may be unsustainable.

Logical Connections and Synthesis

The conversation flows logically from Druckenmiller’s actions with Palantir to a broader analysis of overvalued technology stocks. Laft consistently applies a skeptical lens, emphasizing the importance of fundamental analysis and understanding economic cycles. He differentiates between companies with genuine value (like Palantir, despite its overvaluation) and those driven primarily by hype (like Rigetti). The discussion highlights the risks associated with investing in pre-revenue or pre-earnings companies and the potential for corrections in the technology sector.

The central takeaway is a cautionary message about the current market environment, particularly regarding AI and quantum computing stocks. Laft advocates for a critical assessment of valuations, business models, and competitive landscapes before investing, and suggests that many current valuations are unsustainable. He emphasizes the importance of understanding the limitations of growth and the cyclical nature of technology.