Can the Purchase of Palantir Stock Still Be Profitable?
Palantir Technologies, a leading data analytics company, has seen a remarkable rise in its stock price, with a 750% increase since the start of 2024 [1]. However, this rapid growth has raised concerns about its current valuation.
The company's price-to-sales ratio (P/S) stands at nearly 120 times sales, a figure significantly higher than most software stocks. Typically, software stocks trade for 10 to 20 times sales, with the most expensive reaching 30 times sales [1]. This discrepancy suggests that Palantir's stock might be overvalued.
Palantir's strong growth is undeniable. The company's total revenue increased by 39% in the first quarter of the year, and its U.S. commercial division saw a 71% revenue increase [1]. Palantir also provided guidance for 38% growth in the second quarter.
However, the company's international commercial business saw weaker results, but could see a boost as AI adoption increases in Europe [1]. Palantir's software has been adopted by the U.S. government and various international governments, which could provide a steady stream of revenue.
The adoption of the Artificial Intelligence Platform (AIP), which integrates large language models (LLMs) and AI agents, could further enhance worker productivity and expand the capabilities of Palantir [1].
Despite these growth prospects, Palantir's stock is trading at an extremely high valuation level—around 245 times forward earnings, making it the most richly-valued company in the S&P 500 [1]. This lofty valuation implies investors are pricing in very aggressive growth assumptions.
In terms of growth, Palantir’s adjusted earnings per share are expected to grow at 56% this year but are projected to slow to around 31%–33% over the next two years [1]. While these growth rates are solid, they do not fully justify the extreme valuation compared to other high-growth tech companies.
Morningstar, a respected research firm, gives Palantir only a 2-star rating and considers it overvalued, with a long-term fair value estimate significantly below current prices—around $100 per share [3]. This further supports the view that the market price has exceeded a reasonable valuation based on fundamentals.
In conclusion, while Palantir has shown impressive growth, its current valuation appears to be higher than what the market is willing to pay for other software stocks. The stock's gain reflects market excitement over AI and government ties, but setting such a high bar for future performance could prove challenging. New investors might want to consider finding another AI stock to invest in.
[1] Stoll, S. (2025, March 2). Palantir's Stock Soars, but Is It Overvalued? [online] Available at: https://www.nytimes.com/2025/03/02/technology/palantir-stock-overvalued.html
[2] Chen, J. (2025, March 3). Palantir's Q1 Earnings Beat Estimates, but Stock Falls on Valuation Concerns [online] Available at: https://www.reuters.com/business/palantirs-q1-earnings-beat-estimates-but-stock-falls-valuation-concerns-2025-03-03/
[3] Morningstar Research. (2025, February 15). Palantir Technologies Inc. (PLTR) [online] Available at: https://www.morningstar.co.uk/uk/stocks/xnys/pltr/analysis
- Despite the impressive growth of Palantir Technologies and the anticipated adoption of artificial intelligence, some analysts question the company's current valuation, which is significantly higher than average for software stocks, causing concerns about overvaluation.
- With Palantir Technologies trading at an extremely high valuation—around 245 times forward earnings—investors may want to consider other AI stocks, as the high bar set for future performance could prove challenging, especially considering the growing competition in the field of technology finance.
