Palantir, Applovin fuel a ‘can’t-lose’ market. That’s dangerous for all stocks

You can’t ban froth. You can’t ban lunacy, especially when it pays off. You can’t tell the insiders or big data analytics specialist Palantir to take profits. You can’t stop the executives at Applovin from bailing up here, and you can’t tell the buyers of that mobile gaming ad software company that it may not be as valuable as you think. We sure wish we could. We want a sane market where we don’t have all sorts of stocks roaring on nothing but the smell of profit. We want these buyers to skedaddle because we don’t want New York Stock Exchange-listed companies to be lunatics and the Nasdaq 100 to be some sort of asylum. We now have so many gauges of froth and retail over-enthusiasm. They are all flashing red but not yet bright red or a red that will burn out your retinas. Palantir and Applovin are emblematic of the challenges we are facing right now. Both stocks trade like GameStop did a few years ago during the meme stock frenzy. Yet, unlike the stink of GameStop, these are real, very real companies. PLTR YTD mountain Palantir YTD Many people are counting on Palantir to change the way the Pentagon works. The company’s stock is actually inexpensive when it comes to the Rule of 40 where we add up the growth rate and its free cash flow margin and we see if it bests 40. It does, coming in well north of 50, giving people the “right” to keep paying up for it the way institutions do for the now very sainted ServiceNow . Yes, Palantir is lucrative. Yes, it is run by the brilliant but stunningly arrogant if not downright belligerent Alex Karp who rips through those who actually want to tell the story like a machete through margarine. The contempt is so dripping, so painful that you actually want the stock to crash even as you like everything they do and acknowledge that they may be the hope for the Pentagon to abandon using humans in harm’s way and join the rest of us in the 21st century. But the one thing we do know about this $173 billion company is that there are people who wake up in the morning — if they go to sleep at all — who buy this stock in small amounts, walking it up because there are no “sellers” at that hour except people who put in sell orders well above the market, orders that are almost always taken. I watch it, I watch it go higher and I keep hoping these buyers get pile-driven into a pit of fracking sand because I hate to see this form of “walk up.” Get up and see it yourself. It’s a contest of wills to get the stock higher, a game of where the buyers keep winning and the sellers keep losing. It’s a tug of war where the bulls trash the bears every morning. Because the bulls always win, and we know that from the stock price, there is a sense of immortality that will only spill over to other “Palantirs” that are bagged and gunned but not liquidated. In that sense, we really wish that there was a pump and dump, because then we could say, “Oh, that’s just a pump and dump,” and be able to dismiss the stock, the buyers and all the ephemeral chips that will soon disappear when we all know about the scheme. It’s the opposite. Real company, real stock, real profits to be taken, except they won’t be because that’s not the way “these people” do it. These buyers know that Palantir stock is going higher. It’s a $173 billion stock that won’t stop until it hits, I don’t know $200 billion, $300 billion in market cap? Does it even matter to “these people”? How can I be so certain and who “these people” are? I can be certain because I was one of them myself at one point. When I was at Goldman Sachs advising wealthy people and small family offices, it was the roaring 1980s. I never went to sleep in those days, just a mind-on-fire brain that couldn’t stop trying to memorize every single price and game every single move. I had committed to memory the prices of hundreds of stocks, and I had followed the trajectory of a host of $80 stocks, the PepsiCos and Mercks and Waste Managements and 3Ms of the world then, and I detected a foolproof pattern. Stocks that get to $80 go to $90. Stocks that go to $90 go to $100. Stocks that go to $100 go to $110. Stocks that go to $110 go to $120 and then they split, usually 3-for-1, and you sell them on the split. Oh, don’t worry, I knew my pitch was ludicrous, moronic even. There wasn’t an ounce of rigor to it all. At the time, Goldman Sachs had sales associates and partners with deep relationships with the wealthiest people in New York. I respected the rules. I didn’t go seek the clients of others. But I did attack them at the sources of where they visited and dined and had fun. I was a bit of a David Blaine meets Oz the Mentalist. I unfailingly told them what was going to happen with specific stocks and damnit if I wasn’t always right. Plus, I put my own money where my mouth was. So, here was the process. When I saw my “soft” targets – soft because I wanted to play by the rules and not steal any account —I opened the deck of my mind and peeled off the predictions about the trajectories of the blue chips I was touting. Of course, I was dismissed as a buffoon, despite my Ivy League credentials— they used to impress back then, not that they should have, but they did. Then when I saw them again, and then again, I would have made so much money that they clamored for the “list.” Now, here’s what so “Palantir” about that moment. I was always right. The pattern just kept repeating itself. It went on for more than a year. One day, though, perhaps sensing an Icarus moment, I stopped. I declared victory. I had nothing more to say. The well had deliberately run dry. The people playing today’s Palantir game are those young “MEs”. They keep winning. I don’t think they will show the discipline I did to walk away from what seemed like a casino rigged in my direction because they don’t know what it is like to take a beating as I did because I had traded through the late 70s and very early 80s, a miserable time. I didn’t want to give back the bounty. These “people” today — for them, it is a fascinating first rodeo where they are coining money, and guys like me don’t understand or are too stupid to see all the money that is being made. The irony of viewing me as a scold is completely lost on them. The idea that I would ever declare victory just showed what a loser I was. Oh, and you know what else is lost on them? The stock market crash of ’87. Every one of those “$80 to $120” stocks were decimated. Every penny was given back. I’m still laughing about it. I hope they will be able to do the same, too. APP YTD mountain Applovin YTD Applovin is so similar that it might as well be in some sort of Hall of Mirrors. The buyers who walk up Applovin, this $117 billion company, have no idea what Applovin is. That makes it a lot better than a PepsiCo or a Waste Management . As long as people know that it is enterprise software for mobile game advertising — like the Netflix ad tier — and is moving into e-commerce — like Shopify — then the stock can safely double before any one analyst even gets a chance to put a buy or strong buy on it or raise the price target to $400 or $500. These cowboys, who have never been thrown by a fractious pony, get up every morning at 3:45 a.m. ET — a gloriously a half hour later than me (so your “artful codger” still has the edge) and love Applovin to higher prices. It all works because they are “early” on Applovin, whatever the hell that means, and the insiders are so clueless with their selling that they aren’t in on the joke at all. Nor were the Coca-Cola and Merck sellers either, damn fools of 40 years ago. The Applovin game doesn’t finish until a competitor with heft comes in and slashes its margins. But that will take forever to gin up. Stocks don’t fall from their own heft, so I can’t determine when the contest ends. Applovin is a real company with real prospects and real earnings that you can put a multiple on — as long as you’re looking out to 2026 or 2027 and justify even more aggressive price targets. It doesn’t seem like it will have a Super Micro Computer problem with those pesky auditors who refuse to be in on the run. What losers E & Y can be. Bottom line Why do we care about this? Why do I care about this? Maybe I am jealous that the Club portfolio can’t get in on this run before it becomes more of a musical chair outing. Maybe because I have seen it before and know that it doesn’t end until every graybeard loses his or her credibility calling a top? Those are not the reasons. It’s that it encourages behavior that ultimately extends beyond companies that can really be stupendous like Palantir or Applovin — and takes us to the GameStops and AMCs, which get shorted by smart hedge fund managers, and it becomes a contest of hedgies versus newbies and the newbies are on the side of the righteous and the hedgies are on the side of Mephistopheles and can’t wait to separate the righteous from their money. In other words, we are in a precarious moment where the speculative behavior becomes front and center and the speculators keep winning and winning and winning. As long as they do, the market is even more like a casino than usual and any discussion of the prospects of a Salesforce or even an Nvidia seem dated and silly. You never want to be dated and silly. So, beware of this dark market that’s happening simultaneously with the one full of sunlight and disinfectant. It’s OK when it is in a corner as it still is. But it is not OK when it is the main event. When it is — and I fear it will be sooner than later — we will have to trim and trim until we don’t have enough on for the crescendo and the cleansing. Until then, we have to stay the course — hopeful only these two fires burn out — and we can resume our regularly scheduled bull market. We’ll discuss all this while examining the Club stocks through this lens during our December Monthly Meeting on Wednesday at noon ET. ( See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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