Palantir Technologies, the highly valued AI darling, has been hit hard by the ongoing software stock sell-off. The stock recently dropped below its 200-day moving average for the first time since August 5, 2024, and ended January with its lowest close since July. This is a concerning trend for the defense data and AI software company, especially with its Q4 earnings report due out after the market close on Monday. However, Dean Curnutt, CEO of Macro Risk Advisors, suggests a potential trading strategy to benefit from a possible turnaround.
Curnutt recommends buying call options with a strike price of $162.50 that expire on Friday and selling the same amount of calls with a strike price of $182.50. This strategy could yield a potential payout of around 10.5 to 1. Curnutt's analysis shows that when Palantir has been in a similar downtrodden state before earnings, the stock has typically performed well afterward. As of now, the T-3 move for PLTR is -11%, but in the last 8 quarters, the T+5 moves have been positive, ranging from 22% to 45%.
The recent decline in software stocks, including Unity Software, Roblox, and Take-Two, might be due to concerns about the limitations of Google's Project Genie, a generative-AI prototype. The project can create interactive worlds from text or image prompts, but users can only perform basic actions like movement and jumping. There are no NPCs, interactions, or depth, making it more of a walking simulator. This has led to criticism from industry experts, such as Unity CEO Matthew Bromberg, who believes these models are not suitable for games requiring consistent, repeatable player experiences.
In contrast, rare earth and critical minerals stocks are experiencing a surge due to a potential $12 billion initiative by President Donald Trump to stockpile these materials. The project, dubbed 'Project Vault', aims to secure a domestic supply of strategically important materials for the private sector. Companies like MP Materials, USA Rare Earth, Critical Metals, NioCorp, and United States Antimony Corp. are soaring in premarket trading. The initiative involves companies making initial commitments to purchase materials and paying upfront fees, allowing them to request specific materials from Project Vault. This strategy could potentially benefit manufacturers by ensuring a steady supply of critical minerals, which are essential for various industries, including electronics and energy storage.
