With the results of the company’s latest financial disclosure, few people (if any) will argue against the sheer dominance of Palantir (PLTR). However, it’s also fair to wonder about the big-data analytics firm’s upside potential, especially from the perspective of options trading. While I don’t want to devolve the discussion into a whataboutism, my central thesis is that, despite the strengths of PLTR stock, there is arguably a superior trading alternative.
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First, let’s give credit where it’s due. On Friday, PLTR stock reached a new 52-week high thanks to robust investor sentiment tied to the underlying company’s second-quarter earnings report. On the bottom line, Palantir posted earnings per share of 16 cents, topping Wall Street analysts’ consensus view of 14 cents. Further, the company — which is a principal defense contractor — generated record revenue of $1 billion, exceeding the consensus target of $940 million.
What’s more, the latest sales tally represented a 48% year-over-year increase. It’s no wonder, then, that PLTR stock gained nearly 18% last week.
As if that wasn’t enough, management also boosted its full-year 2025 revenue guidance to a range of $4.142 billion to $4.150 billion. Previously, the outlook called for a range between $3.89 billion and $3.90 billion.
Still, with all that good news, many analysts are predictably concerned about the sky-high valuation of PLTR stock. At this moment, the equity trades at a breathtaking 779x trailing-year earnings. At the end of last year, the ratio was 378x. On the surface, it’s reasonable to consider an alternative idea.
Fortunately, as you’ll soon see, an alternative way may be waiting around the corner.
Getting the Proper Epistemological Framework for PLTR Stock
With just a glance at the “rich” premium that PLTR stock commands, many investors undoubtedly are hesitant about acquiring the equity. Again, no one’s going to doubt Palantir anymore. However, the fear of holding the bag is a real one. At the same time, it’s important to make decisions that are based on epistemologically sound principles.
In that sense, I reject the concept of labeling PLTR stock as “rich” or any other description unless the analyst making the claim defines what that term means. Indeed, I would state that calling PLTR “rich” is a category error because, by default, continuous scalar signals (such as share price or valuation ratios) do not have objective, discrete meaning.
For example, at the time of writing, PLTR stock is priced at just under $182. Some analysts will take that price and plug it into a valuation formula and label the outcome as “rich.” However, this discrete label implies necessarily that, at some point, “rich” becomes “not rich” and eventually “good value,” maybe even “cheap.” It does raise suspicion that these levels are somewhat subjective.
Please notice how the financial analysis industry casually defines publicly traded securities as “good value” or “overpriced” and everything in between. For me, the only objective truth in the equities sector is that, at the end of the day, the market is either a net buyer or a net seller.
Framework for Profiting from PLTR Stock Price Movements
With the following framework, I’m going to discretize or convert PLTR’s price action into a binary signal. In the past 10 weeks, the market voted to buy PLTR five times and sell five times. During this period, the security enjoyed an upward bias. For brevity, we can label this sequence as 5-5-U.
Since Palantir’s public market debut, the baseline probability or the chance that a long position in PLTR stock will rise on any given week is 54.72%, a solid upward bias. This is effectively our null hypothesis, the probabilistic performance expectation assuming no mispricing. However, our alternative hypothesis is that, because of the 5-5-U sequence, there is a mispricing.
Unfortunately, the positive delta between the projected upside probability of the aforementioned sequence and the baseline probability is minimal. As such, when running a one-tailed binomial test, the sequence reveals a p-value of 0.5472. This means that there’s a 54.72% chance that the implications of the signal could arise randomly as opposed to intentionally.
In other words, the trading signal is likely to be just noise. So, I reject PLTR stock as a strong trading idea at this moment, given the lack of empirical viability, not due to some vague notion of being overpriced.
AeroVironment (AVAV) Flies as the Alternative
Rather than trying to fit a square peg in a round hole, speculators may want to give AeroVironment (AVAV) a closer look. A defense contractor specializing in drone warfare, AeroVironment surged in popularity due to the Ukraine war. It’s no slouch, either, with AVAV stock gaining nearly 60% on a year-to-date basis.
However, recent activity has been shaky. On Friday, AVAV stock dropped about 5%, bringing its trailing-five-day loss to more than 8%. In the past month, AVAV declined by over 6%. Still, for savvy speculators, this could be an opportunity.
No, I’m not going to say that AeroVironment is “cheap” just because the security printed red ink. That would be committing a presuppositional fallacy. Instead, I noticed that in the past 10 weeks, AVAV printed a 4-6-U sequence: four up weeks, six down weeks, with a positive trajectory across the period.
This is an unusual sequence because the balance of distributive sessions outweighs the accumulative. Nevertheless, AVAV stock has enjoyed a northward trek. Historically, this setup has represented a sentiment turnaround.
As a baseline, the null hypothesis for AVAV stock is 51.88%, a modest upward bias. However, there appears to be a mispricing because of the 4-6-U sequence, which drives the upside probability in the following week to 68.75%, with a median return of 1.89%.
Based on past analogs, AVAV stock has a chance to reach $260.65 over the next five weeks, assuming that the bulls can maintain control for that long.
It’s a risky proposition, but the 250/260 bull call spread expiring September 19 appears to be the most rational. This transaction involves buying the $250 call and simultaneously selling the $260 call, for a net debit paid of $470 (the maximum possible loss). Should AVAV stock rise through the short strike price of $260 at expiration, the maximum profit is $530, a payout of nearly 113%.
Of course, a lot rides on the empirical viability of the 4-6-U sequence. In AeroVironment’s case, the p-value is a much more acceptable 0.1353. To be upfront, if we were pushing a drug, such a high p-value would immediately fail us. However, we’re looking for an asymmetric edge in an open, entropic system. In that context, I firmly believe that the 4-6-U sequence is empirically intriguing.
What is the Price Target for AVAV Stock?
Turning to Wall Street, AVAV stock carries a Strong Buy consensus rating based on 11 Buys, one Hold, and zero Sell ratings. The average AVAV stock price target is $294.45, implying 20.5% upside potential over the next twelve months.
Palantir Deserves Respect, But AVAV is the Stock of the Moment
No one should dismiss the incredible results that Palantir has strung together. However, empirical data indicates that PLTR stock could be stretched. Instead, for options traders seeking short-term profits, AVAV stock appears to offer better odds based on the statistical/quantitative framework presented.