Palantir Technologies Inc PLTR has emerged as one of the top performers in the market over the past year, boasting an impressive increase of nearly 235%. Despite this success, cracks are beginning to show in the company’s success story. Notably, in the past month, PLTR suffered a 29% decline, marking an unusual period of volatility for the stock.

Until mid-February, Palantir appeared to be a strong contender in the market. Supporters pointed to the potential of artificial intelligence as a driving force for growth. A recent report by McKinsey suggested that generative AI could boost productivity by anywhere from $2.6 trillion to $4.4 trillion annually, depending on its application. This optimistic outlook led investors to believe that Palantir could sustain its high valuation due to its focus on advanced analytics.

However, significant concerns have arisen, particularly from notable investor Cathie Wood. Her Ark Invest fund has been consistently selling shares of PLTR even as many investors were buying. The situation intensified last month when high-ranking insiders at Palantir chose to sell a substantial amount of their shares.

While executives often sell shares for various reasons, including tax purposes, the timing of these sales raised eyebrows. Economic indicators hinting at a potential recession have made growth stocks like Palantir particularly vulnerable.

Nevertheless, labeling PLTR as a lost cause may be premature. Recently, Palantir CEO Alex Karp met with representatives from South Korea’s shipbuilding giant, Hyundai Heavy Industries Group, to discuss the innovations driven by artificial intelligence in shipyards. They also explored potential defense collaborations.

Hyundai stated that AI-powered defense solutions could significantly contribute to national security in both South Korea and the U.S. Furthermore, a report by Precedence Research predicts that the global AI in aerospace and defense market could reach a valuation of $65.43 billion by 2034, with a compound annual growth rate (CAGR) of 9.91% starting in 2024.

In addition to these developments, Palantir has advocated for the Pentagon to adopt a software-first approach to prevent lagging behind global competitors. The company asserts that software solutions are the most effective method to bridge security gaps between the U.S. and its primary adversaries.

The Direxion ETFs: Given the recent turmoil surrounding Palantir, investors might consider the Direxion PLTR-focused exchange-traded funds (ETFs). For those with a bullish outlook, the Direxion Daily PLTR Bull 2X Shares PLTU offers 200% leveraged exposure to the analytics firm. Conversely, the Direxion Daily PLTR Bear 1X Shares PLTD provides 100% of the inverse performance of PLTR stock.

Both Direxion funds provide leveraged or bearish options without the complexities of options trading. Unlike derivatives, these ETFs can be purchased like shares of any publicly traded company.

However, it’s important to note that all investments carry risks. The PLTU and PLTD ETFs are designed for single-day exposure only. Retaining leveraged or inverse funds longer than the recommended period could create significant performance discrepancies due to daily market volatility compounding effects.

The PLTU ETF: Launched in December, the Direxion PLTR Bull fund experienced a strong entry before facing selling pressures.

• After a series of declines, there are now signs of positive momentum in the PLTU ETF, supported by increased trading volume.
• However, the distinct peak in late December, followed by a sharp rise in February, suggests that PLTU might be developing a bearish head-and-shoulders pattern.

The PLTD ETF: Also launched in December, the Direxion PLTR Bear fund has seen a decline of nearly 26% since inception.

• Interestingly, the bear fund has shown near-term momentum, gaining almost 33% in market value over the past month.
• Currently, PLTD is positioned between its 20-day exponential moving average at the lower end and the 50-day moving average on the upper side. Another negative market event could trigger a significant spike upwards.

Featured image by Jensen Art Co from Pixabay.