Course Corrections in the AI Sector: Why Citadel is Betting on Alphabet and Avoiding Palantir

In a surprising move, Ken Griffin, founder of the influential hedge fund Citadel, sold shares of Palantir Technologies in the third quarter and increased his investments in Alphabet. This step follows a recent assessment by Forrester Research, which recognized both Palantir and Alphabet as leading players in the field of artificial intelligence and machine learning. Palantir has made a name for itself in the AI domain with its AIP platform by adding generative AI capabilities to its existing Gotham and Foundry platforms. Through this innovative architecture, Palantir enables companies to seamlessly integrate data and gain insights that enhance decision-making. In the third quarter, Palantir achieved impressive business results, including a 30% increase in revenue and a 43% increase in non-GAAP earnings. However, despite these successes, Malik Ahmed Khan of Morningstar expressed caution regarding the valuation of Palantir's stock. According to Khan, while the company offers significant growth opportunities, the current valuation at 188 times adjusted earnings might be too high. He advises investors to exercise caution and possibly reduce their holdings. Griffin's decision to focus on Alphabet could be understood as a strategic move given Palantir's ambitious growth forecasts and the high valuation of its stock. Wall Street expects Palantir's adjusted earnings to rise by 31% over the next 12 months. Nonetheless, the price-to-earnings ratio remains high, posing a risk of future price correction.