Palantir Technologies (PLTR) Stock: AI Darling or Overpriced Tech Bubble?

TLDR:

Palantir stock is up 20% YTD compared to a 12% decline in S&P 500, following a 340% gain in 2024 The stock is trading at 474x P/E ratio and 78x sales, which many analysts consider extremely overvalued Mizuho analyst Gregg Moskowitz recommends selling PLTR with an $89 price target The company’s Q4 revenue grew 36% year-over-year to $828 million, with 52% growth in the U.S. Despite strong business performance and AI integration, some analysts suggest waiting for a correction to around $30.50 (25x sales)

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Palantir Technologies has been riding high on the artificial intelligence wave, but growing concerns about its sky-high valuation are causing some analysts to wave caution flags. The data analytics software company has seen its stock soar this year while the broader market struggles, but the question on many investors’ minds is whether this growth story has become too expensive.

Palantir Technologies Inc. (PLTR)

As of April 21, Palantir shares were up 20% year to date. This performance stands in stark contrast to the S&P 500’s decline of more than 12% during the same period.

The gains come on top of an eye-popping 340% increase in 2024. However, the stock has pulled back about 28% from its 52-week high of $125.41 reached earlier this year.

Palantir’s business results have been impressive. The company reported fourth-quarter revenue of $828 million, representing 36% year-over-year growth.

U.S. revenue was particularly strong, jumping 52% compared to the previous year. The company’s cash generation has also been robust, with $1.15 billion in cash from operations on revenue of about $2.87 billion in 2024.

AI Integration Driving Growth

Palantir CEO Alex Karp highlighted the company’s position in the AI landscape during the fourth-quarter earnings release. “Our business results continue to astound, demonstrating our deepening position at the center of the AI revolution,” Karp stated.

The company has integrated AI deeply into its software platform. This strategic positioning has helped Palantir capitalize on the increasing investments businesses are making in AI technologies.

Looking forward, management expects the strong performance to continue. The company has guided for 2025 revenue to increase between 30.5% and 31% year over year.

Palantir also projects adjusted operating income between $1.55 billion and $1.57 billion for 2025, up from about $1.3 billion in 2024.

The company’s ability to generate cash flow while maintaining high growth rates has certainly caught investors’ attention.

Valuation Concerns Mount

Despite the strong business performance, Palantir’s current valuation has raised eyebrows among analysts and investors alike.

With a market capitalization of approximately $213 billion, the stock is trading at a price-to-earnings ratio of 474 based on 2024 earnings of $0.19 per share.

Even when considering price-to-sales, which might be more appropriate for a growth company, Palantir’s ratio of 78 is extraordinarily high compared to other software companies.

Mizuho analyst Gregg Moskowitz recently advised investors to sell PLTR stock, setting an $89 price target. He argued that the company’s “high multiple” is “very difficult to justify.”

According to Moskowitz, the current stock price already assumes a “material acceleration” of Palantir’s revenue growth and financial results that exceed analysts’ consensus estimates.

Some analysts suggest that a more reasonable valuation for a company with Palantir’s growth profile might be around 25 times sales. This would put the stock price at approximately $30.50 – roughly two-thirds below its current level.

Mixed Outlook

Not all the analysis is negative. Moskowitz acknowledged that Palantir is likely to beat analysts’ average revenue estimates and does deserve “a premium valuation” given its market position.

The company is well-positioned to benefit from the continued strong adoption of AI in America as it helps businesses implement these technologies.

However, the question remains whether even strong execution can justify the current valuation levels.

The stock’s recent performance shows some cooling of momentum, with shares falling 2% in the last month. Nevertheless, PLTR is still up 29% over the last three months and has soared 335% in the past year.

For investors considering an entry point, the current price appears to leave little margin for error. Even small disappointments could lead to significant price corrections given the elevated expectations built into the stock.

Palantir’s business continues to show impressive growth and cash generation, but investors may want to carefully consider the risk-reward profile at current price levels.

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