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It finally happened. After seeing its stock appreciate by more than 250% just this year, Palantir (NYSE: PLTR) has now surpassed legendary defense contractor Lockheed Martin in market capitalization. The software and artificial intelligence (AI) provider for the government, military, and big business is posting strong revenue growth and inflecting profits. It just reported Q3 earnings, which has propelled the stock up 40% in the past month.

Investors are getting increasingly bullish on Palantir stock. But should they be? Here’s what might come next for this hypergrowth momentum stock.

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At a market cap of $136 billion, Palantir is now one of the world’s largest defense contractors. The aforementioned Lockheed Martin has a market cap of $134 billion, with competitors, such as RTX Corporation, now one of the few stocks with larger valuations than Palantir.

How did it get here? With modern software solutions for the United States military and government agencies. This disrupted the legacy systems (or where no systems existed at all), as the U.S. government is looking for best-in-class software to maintain its edge. Government contracts are large and can expand over time, which is why Palantir’s U.S. government revenue keeps growing at a quick pace. Last quarter, U.S. government revenue grew 40% year over year.

But Palantir isn’t only selling to the U.S. government. In recent years, it has expanded to bring its software and AI solutions to large enterprises with much success. Even though the U.S. government can spend a lot of money, it is truly just one customer at the end of the day. Hundreds of corporations could utilize Palantir’s advanced analytical tools, and they are now starting to do so.

Accelerating demand from the U.S. government, as well as U.S. corporations, has enabled Palantir to accelerate its revenue growth. Last quarter, U.S. commercial revenue grew 54% year over year to $179 million. With the addition of the steady growth from government contracts and a slight headwind from international sales, overall revenue grew 30% year over year in the third quarter to $726 million.

Customer acquisition is growing even quicker. Total customers grew 39% year over year in Q3 and 6% from the second quarter to 629. That may seem like a small number, but remember, Palantir only targets the largest companies looking for custom-built software. The acceleration after Q3 seems to be continuing. Palantir closed 104 deals in the quarter worth over $1 million, which should turn into new revenue-generating customers in future years. Given the long-term nature of these contracts, the most important key performance metric for investors to track is customer count. If the customer count keeps rising, revenue growth will follow.

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We have talked a lot about Palantir’s business. The stock is a different matter. Growth and value are tied at the hip (as Warren Buffett likes to say), meaning it doesn’t only matter if a company is growing revenue quickly. It also matters what price you pay for that growth.

The good news for Palantir is that, even though growth is accelerating, profit margins have remained strong. Generally accepted accounting principles (GAAP) net income was $144 million last quarter for a margin of 20%. Once revenue growth slows down, I expect profit margins to expand to 30% or higher due to the low variable costs of running a software business.

Over the last 12 months, Palantir has generated $2.65 billion in revenue. Let’s be optimistic and assume revenue growth will remain strong over the next five years, and this figure can jump to $10 billion. Optimistic for sure, but not out of the question. With a 30% net margin, that equates to $3 billion in annual earnings.

Today, Palantir has a market cap of $136 billion. Even if these earnings figures are met, the stock will be trading at a price-to-earnings ratio (P/E) of 45 in five years. That would be a steep valuation, and it is five years after monster growth estimates and margin expansion. The price you pay for a stock matters. Even though Palantir is a fantastic business, I think the stock will perform poorly over the next five years.

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Palantir Reaches Huge Milestone: Here’s What Could Happen Next was originally published by The Motley Fool

Things have gone from bad to worse for Super Micro Computer (NASDAQ: SMCI). After a scathing short report highlighted questionable accounting practices, the company’s auditor resigned, and it has not been able to file its annual report at its expected due date. The once-loved artificial intelligence (AI) stock is showing red flag after red flag with its business practices. Investors are acting rationally and exiting their positions.

As of this writing, Super Micro Computer stock is down 82% from highs set earlier this year, wiping out billions of dollars in shareholder value. Is the worst over for this stock? Or is the company facing potential accounting fraud?

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Super Micro Computer stock peaked back in March. It traded slightly lower to flat for a few months, which looked like a normal price correction after zooming up 250% in just a few short months. Proclaimed a winner of the AI spending boom, the company was posting gangbuster revenue growth as a builder of data centers for third parties. Other companies would come to Super Micro Computer to build efficient data centers with advanced computer chips from the likes of Nvidia.

Now, some of this revenue growth is being put into question. Allegations began on Aug. 27 when famous short-seller Hindenburg Research put out a short report alleging accounting manipulation, self-dealing with executive family members, and evading U.S. foreign sanctions by selling to restricted countries. Given Hindenburg’s strong track record, Super Micro Computer’s stock fell on this news.

The stock treaded water until the end of October. Then, its auditor, Ernst & Young, resigned, stating that it was unwilling to associate itself with management’s prepared financial statements. A public statement from an auditor like this is rare and damning. One could argue that auditors are typically too lenient with management teams. For example, the same auditor still validated Wirecard‘s financial statements, which ended up having Russian spies as a part of its fraud. Now, Super Micro Computer has delayed its quarterly filing with the Securities and Exchange Commission (SEC), which is driving the stock even lower.

With no SEC filings, Super Micro Computer is now at risk of getting delisted from the Nasdaq exchange. The company has 180 days to file its annual report past the due date once it formulates a plan with the Nasdaq regulators. If it doesn’t, the stock will get dropped from the exchange.

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Disregarding these accounting and filing issues, Super Micro Computer’s business seems to be stagnating. The company expects to generate around $5.9 billion in revenue for the quarter ending in September compared to previous guidance of $6 billion to $7 billion. Gross margin is also a concern. Over the last 12 months, the company has generated a 14% gross margin compared to 18% in 2023. This declining margin will hurt Super Micro Computer’s ability to generate any significant cash flow for shareholders.

On the stated numbers, Super Micro Computer stock looks cheap. It has a trailing price-to-earnings ratio (P/E) of 9, which is dirt cheap for a fast-growing company that should benefit from the AI boom.

However, there is major doubt that Super Micro Computer’s financial statements are even accurate. Short-sellers are calling the company’s bluff, its auditor just resigned, and it can’t seem to come out with its own financial statements in a timely manner. All these developments happening in just a few short months should raise suspicions.

The stock is up over 700% in the last five years and has a single-digit P/E. That doesn’t matter though. No matter how cheap a stock looks, you can’t invest in a company if you have no idea whether the financial statements are accurate. Avoid buying the dip on Super Micro Computer stock — there is a major risk the stock will keep falling further from here.

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Super Micro Computer Stock Collapse: Is the Worst Over? was originally published by The Motley Fool

By Wayne Cole

SYDNEY (Reuters) – The dollar was looking to extend its bull run on Monday as lofty Treasury yields and a more restrained outlook for U.S. rate cuts burnished its attractiveness, though the risk of intervention had caused a pullback against the yen.

Yen bears were tense in case Bank of Japan Governor Kazuo Ueda used a speech later Monday to flag a possible rate hike in December, in part due to the weakness of the currency.

Ueda will deliver a speech at 0100 GMT, followed by a media conference at 0445-0515 GMT. It will be his first opportunity to speak directly on monetary policy since Donald Trump’s victory in the U.S. presidential election on Nov. 5.

Markets imply around a 55% chance of a quarter-point rate hike to 0.5% when the BOJ meets on Dec. 19.

Japanese Finance Minister Katsunobu Kato on Friday put the market on warning of possible intervention if the yen fell too far and fast, sending the dollar down 1.3% to 154.30 yen. Support now lies at 153.86, with resistance at last week’s peak of 156.76.

That pullback helped steady the euro for the moment at $1.0530, though that was still uncomfortably close to the recent one-year trough of $1.0496.

Against a basket of currencies the dollar held at 106.730, having touched a one-year top of 107.07 on Friday. The index climbed 1.6% over the week, marking six weeks of gains in the last seven.

The rally has coincided with a savage swing in 10-year Treasury yields, which have climbed 70 basis points since the start of October, fuelling a 5.4% rise in the U.S. dollar index.

PRICING US EXCEPTIONALISM

“While a period of consolidation looks likely in the near term, we have revised up our forecasts for the dollar and now project a further 5% appreciation by the end of 2025,” said Jonas Goltermann, deputy chief markets economist at Capital Economics.

“That is based primarily on a view that Trump will push ahead with the core tariff policies he proposed on the campaign trail and that the U.S. economy will continue to outperform its major peers.”

Markets are eager to hear who Trump will pick as Treasury Secretary, with Howard Lutnick, the CEO of Cantor Fitzgerald, and investor Scott Bessent top candidates for the job.

Analysts generally assume Trump’s touted policies of tariffs, reduced immigration and debt-funded tax cuts will be inflationary, so limiting the scope for further rate cuts by the Federal Reserve.

Futures imply a 60% chance of the Fed easing by a quarter-point in December and have only 77 basis points of cuts priced in by late 2025, compared with more than 100 a few weeks ago.

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(Bloomberg) — Most Asian stocks are set to fall early Monday as traders rein in expectations of Federal Reserve easing and come to terms with the cost of President-elect Donald Trump’s proposed fiscal and trade policies.

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Equity futures in Australia, Japan and mainland China point to losses, while contracts in Hong Kong edged higher. US stocks slid 1.3% on Friday to erase more than half of their gain following the US election.

A soft start risks extending last week’s global selloff as investors price the prospect of Trump’s tariffs and tax cuts potentially reigniting inflation in an already robust US economy. Views are emerging that the Fed may pause its easing cycle in 2025, with the odds of a rate cut next month now seen as less than a coin toss.

“Another Fed cut is still likely in December but it’s now a close call,” Shane Oliver, chief economist at AMP Ltd. in Sydney, wrote in a note to clients. “A slower pace of easing is likely next year, particularly given that Trump’s policies regarding tariffs and more tax cuts provide some upside threats to inflation on a one-to-three year view.”

The dollar was steady against major peers in early trading after climbing 1.4% last week, a seventh straight weekly gain as Treasury yields surged on slashed expectations for Fed policy. The moves, coupled with concerns over Chinese growth, have ravaged everything from the Australian dollar to emerging market bonds. Asian stocks slumped 3.9% last week, their worst sell-off in about six months.

In Asia on Monday, traders will be watching a speech and media briefing by Bank of Japan Governor Kazuo Ueda for indications of the central bank’s next policy move after officials raised concerns over the rapid weakening of the yen. Markets are pricing about 14 basis points of rate hikes in December, according to swaps data compiled by Bloomberg, ahead of inflation data this week.

“Ueda’s press conference should be the biggest focus of this week in gauging the timing of the BOJ’s next rate hike,” Barclays strategists led by Themistoklis Fiotakis wrote in a note to clients. “USD/JPY could remain under upward pressure in the short term due to the Trump and yen carry trades, but will likely rise more slowly as it approaches 160 on FX intervention concerns and positioning for faster rate hikes.”

Elsewhere this week, China’s banks are expected to keep their loan prime rates unchanged after a cut in October. Bank Indonesia will deliver a policy decision as the rupiah neared 16,000 per dollar on Friday, a key psychological level for a central bank focused on currency stability.

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(Bloomberg) — A two-month slump has all but wiped out the US Treasury market’s gains for the year, as traders brace for Donald Trump’s return and also the chance of slower interest-rate cuts from the Federal Reserve.

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A Bloomberg index of Treasury returns has seen its 2024 advance shrink to about 0.7% from a peak of 4.6% on Sept. 17, the day before the Fed reduced borrowing costs for the first time since 2020.

It marks a disappointing run of losses in the world’s biggest bond market, which has been battered by signs of a resilient US economy and the expectation that Trump’s election victory will usher in quicker inflation given his campaign promises such as steeper tariffs and lower taxes.

“The Treasuries market is struggling to find the North Star,” said Ed Al-Hussainy, a New York-based strategist at Columbia Threadneedle. “There are too many moving parts.”

Investors had anticipated that Fed easing would bring a windfall. Instead, 10-year yields have soared almost three quarters of a point since Sept. 18, marking the biggest jump in the first two months of a rate-cutting cycle since 1989.

Buyers Emerge

Buyers did step in on Friday as 10-year yields rose to 4.5% for the first time since May, showing some investors are holding out hope for a positive annual return in 2024.

Others may be reluctant to conclude that the market’s slide is over as doubts grow around how much further the Fed can drop rates. Next month’s decision is now seen as close to a coin flip after Fed Chair Jerome Powell said last week that the central bank isn’t “in a hurry” to cut.

It all leaves the market potentially in a state of limbo until the next round of crucial data, starting with the Fed’s preferred gauge of inflation at month-end, the first in a series of reports that may dictate what officials do in December.

Ten-year yields reached their peak last week on Friday after a solid report on retail sales. Bloomberg’s Economic Surprise Index jumped to the highest since February, signaling economic data are surpassing expectations.

Traders are now pricing in a total of about three quarters of a point of cuts over the next 12 months, roughly half of the easing reflected for that period back in September.

Following the selloff of the past couple months, the 10-year benchmark note “appears cheap,” but the valuation is still not compelling enough to present a buying opportunity, JPMorgan Chase & Co. strategists led by Jay Barry wrote in a note last week. They “prefer to be patient in fading these recent moves.”

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