The AI Bubble and Noise
In the realm of AI, it often seems like we're surrounded by a whirlwind of hype and confusion. On one hand, there's Palantir, a Wall Street darling with a lofty valuation. Its story about an AI operating system has sent its market share soaring, making investors both excited and apprehensive. On the other hand, there's Hims & Hers, a company with a growth rate 1.5 times that of the previous year and stable profits, yet its valuation is a fraction of Palantir's. This stark contrast presents a dilemma for investors: should they chase the dream of sky-high returns with Palantir or opt for the more grounded reality of Hims & Hers?
The Cost and Revenue of AI
Before delving into the specific stocks, it's crucial to establish a basic cognitive framework. To understand the AI revolution, we need to consider the cost and potential revenue. McKinsey predicts that by 2030, the world will need to invest up to $7 trillion to upgrade or build data centers to support AI. This is a staggering amount, exceeding the combined GDP of Japan and Germany. Currently, AI can generate revenue through two channels: the global digital advertising market and the global subscription service market. In 2024, the total market share of these two channels is $1.6 trillion. Even if AI could magically capture 100% of this revenue, it would still fall short of covering the $7 trillion investment in data centers. So, why are investors pouring money into AI? The answer lies in the fact that this is not a game where everyone can make money. It's a win-win situation where the goal is to create a prosperous AI ecosystem through a capital-intensive competition.
Evaluating AI Companies
When evaluating any company related to AI, we must use critical thinking and ask ourselves three questions. First, does the company's cost match its real income? Second, how many competitors does it have? Since most of the AI market is about transferring wealth rather than creating new wealth, the more competitors a company has, the more challenging it will be to succeed. Third, does the company consider the impact of its future prospects on the second and third stages of the entire economy? For example, if a company's cost is falling while the market is shrinking, its potential may be limited.
Palantir: The King of the AI Revolution
Palantir, with the stock code PLTR, is often regarded as the king of the AI revolution. Its story is grand, positioning itself not just as an AI user but as a beneficiary. Palantir aims to deploy the underlying operating system when American companies and governments adopt AI. It's not focused on training general-based models like CPT but on developing a platform that enables enterprises, especially the government, to use these models safely and effectively. From the US Department of Defense to large multinational companies, Palantir's platform is seen as essential for analyzing vast amounts of data. However, Palantir is also at the center of capital consumption. Its competitors include tech giants like Microsoft, Google, and Amazon. Moreover, its high valuation is based on the belief that it can win the AI competition rather than on its current performance.
Hims & Hers: The Solid Player
Hims & Hers, with the stock code HIMS, has a different story. Its positioning is not to develop AI but to apply it. As a long-term medical company, Hims & Hers offers a range of health services through a subscription model. By leveraging AI, the company can reduce costs and improve the user experience. It has entered a $100 billion-a-year low-cost market and has the potential for growth with the introduction of new products. Unlike Palantir, Hims & Hers is a company whose value can be measured more objectively.
Comparing the Two Companies
Let's compare Palantir and Hims & Hers using some key metrics. The price-to-sales ratio (PS Ratio) shows how much investors are willing to pay for each dollar of a company's revenue. Palantir's PS Ratio is 105.73, while Hims & Hers' is 7.72. This means that the market values Palantir's future $1 revenue nearly 14 times more than Hims & Hers'. In terms of growth quality, we can use the 40 law, which adds a company's revenue growth and profitability. Palantir scores 85, while Hims & Hers scores 126, indicating that Hims & Hers has a higher growth quality. When it comes to real profitability, Palantir has struggled to make a profit under general accounting standards, while Hims & Hers has been profitable for two consecutive seasons.
Market Pricing and Investor Options
So, why is there such a significant difference in market pricing? The market is pricing Palantir based on its limitless potential, while Hims & Hers is priced for its limited certainty. Many investors are betting that Palantir will become the next Google or Meta, while others see Hims & Hers as a good but less exciting investment. As an ordinary investor, there are four options: bet on Palantir's dream, consider it a bubble and invest in Hims & Hers, buy both companies, or avoid both. However, each option comes with its own risks and opportunity costs.
The Paris Trading Strategy
To overcome this dilemma, we can consider the Paris Trading strategy, also known as relative value trading. The core idea is not to bet on the overall market movement but to bet on the outperformance of the more undervalued company. In this case, we can go long on Hims & Hers and short on Palantir. By doing so, we are investing in a high-quality growth company with proven profitability while shorting a company with a bubble-like valuation. This strategy can be profitable regardless of whether the market is in a bull or bear phase, as long as Hims & Hers performs better than Palantir.
Timing and Catalysts
Timing is crucial in trading. For Hims & Hers, positive financial reports, especially in the weight loss drug business, can be a catalyst for value growth. For Palantir, slowing profitable business growth or the emergence of more powerful competitors can pose significant risks. Additionally, we need to be aware of Palantir's short interest, as a short squeeze can have a major impact on its stock price.
Using Options as a Financial Tool
Options can be a useful financial tool in this trading strategy. When using options, we need to determine the time range, strike price, and position sizing. For example, we can choose options with an expiration date in June or even longer, depending on our investment horizon. The strike price should be selected based on our risk tolerance and leverage requirements. Position sizing is also important to ensure that our investment is balanced and sustainable.
Conclusion
This article is not just about stock trading but about developing a cognitive system. In a world filled with information and hype, it's essential to be able to think critically and see through the noise. The relative value trading strategy presented here is not only a financial strategy but also a model of thinking that can help us make better decisions. So, the next time you're faced with a choice between a grand narrative and a more grounded reality, remember to consider the relative value and make an informed decision.
{# 
{# 
{# 
{#