Palantir (PLTR) stock dropped more than 12% following the company's latest quarterly earnings release, which included an annual revenue forecast that failed to impress investors.
Palantir issued full-year revenue guidance in a range of $2.68 billion to $2.69 billion. This came roughly in line with the $2.68 billion analysts had expected. But with shares already up about 15% in the past five days, that guidance wasn't enough to keep the stock's rally going.
"Results were solid, but we believe investors are focused on the multiple with the stock trading at 16 [times 2024 revenue] (highest in our universe) and up 47% [year-to-date] into the print," Jefferies analyst Brent Thill wrote in a note to clients on Tuesday morning.
The drop in shares of the AI software player followed a similar playbook to that of other AI favorites this earnings season. Largely, after massive rallies in the last year, AI-related names outside of Nvidia (NVDA) have failed to impress investors this earnings season.
Citi analyst Tyler Radke noted Palantir's latest release showed solid upside for the company, prompting the analyst to move up his revenue and profit estimates for the year. But Radke maintained a Neutral rating on the stock, noting that Palantir trades at "one of the highest" valuations in software.
The reaction appeared to pause a broader rally over the past several days among meme stocks, or those that often trade at stretched valuations usually detached from traditional fundamentals stock analysts would recommend.
SoundHound AI (SOUN), a recent popular AI trade, had seen its stock pop double digits on Monday off seemingly no catalyst. Shares slipped more than 2% on Tuesday.
GameStop (GME) and AMC (AMC), popular retail trades from the initial meme stock rally in 2021, had been ripping higher in recent sessions. GameStop had been up nearly 45% in the past week, but shares slipped about 6% on Tuesday. AMC was down more than 4%.
The same could be said for other names, like Carvana (CVNA), which had ripped more than 40% since the company reported earnings on May 1, trading higher in every session until a slight decline on Tuesday.
The trends in meme stocks have been closely watched by stock strategists, with the market near a record high as a potential sign that market sentiment has become too frothy. For now, strategists don't think that's the case.
Deutsche Bank's equity strategy team noted in a weekly note on Monday that risk appetite has increased recently but remains "just above average" and has room to run higher. Citi strategists expressed a similar reading in their Levkovich Index, which takes into account investors' short positions and leverage, among other factors, to determine market sentiment.
After breaching levels of "euphoria" in March, the latest reading on Friday showed the Levkovich Index has exited the euphoria stage, indicating sentiment is "back to normal" amid the market's April pullback, Citi's team led by Scott Chronert wrote in a research note.
The next test for sentiment on meme names is expected after the bell when Reddit (RDDT), the host of stock chat rooms that exploded in popularity back in 2021, reports its first quarterly results as a public company.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
Click here for in-depth analysis of the latest stock market news and events moving stock prices.
Read the latest financial and business news from Yahoo Finance