Palantir Technologies (PLTR) has been the top-performing S&P 500 Index ($SPX) stock over the past year. Shares of this AI software company have risen over 92% year-to-date. Moreover, shares have gained 490% in the past year. Palantir’s perceived leadership in artificial intelligence (AI) and machine learning (ML) platforms, its accelerating financial performance led by momentum in its commercial business, significant strategic contracts with the U.S. government, and focus on product innovation have led to a rally in PLTR stock.
Plus, Palantir’s remarkable stock surge has occurred even as the company continues to hold an excessively high valuation.
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The market’s willingness to overlook Palantir’s premium valuation is rooted in its strategic positioning within the burgeoning AI landscape. Investors remain confident in Palantir’s ability to turn advanced AI capabilities into real-world solutions for businesses and government clients. In short, this suggests that the market is heavily influenced by momentum in PLTR stock, driven by the compelling narrative surrounding AI.
Given the momentum, Palantir stock could still witness short-term gains. However, the substantial disconnect between PLTR’s current pricing and valuation introduces considerable risk.
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Palantir’s current valuation is strikingly high, far exceeding not only the broader industry averages, but also those of much larger, more established tech companies with substantially greater revenue streams.
To put this in perspective, Palantir’s price-sales (P/S) ratio has surged to an astonishing 115.23x. In contrast, peers in the AI and software space — such as Snowflake (SNOW), UiPath (PATH), and C3.ai (AI) — are trading at much lower forward P/S multiples of 19.68x, 4.6x, and 7.99x, respectively.
Even the biggest names in the tech space appear far more reasonably priced compared to Palantir. Alphabet (GOOGL), for example, trades at a P/S ratio of just 5.73x. Microsoft (MSFT) comes in at 14.74x, and even Nvidia (NVDA), with its dominant role in AI hardware, has a P/S of 26.96x — still a fraction of Palantir’s.
This comparison highlights the extent to which Palantir’s valuation stands as an outlier, even within its high-growth industry. Moreover, its valuation implies that the market is pricing an enormous amount of future growth. This suggests a significant portion of the stock’s value is based on future potential rather than current fundamental performance. This extreme valuation sets an incredibly high bar for future performance, leaving almost no room for operational missteps or slowdowns in growth.
Palantir has been on a remarkable growth trajectory, and its recent financial performances suggest that momentum in its business is far from slowing. The strong demand for its Artificial Intelligence Platform (AIP) has enabled the company to steadily expand its footprint, particularly in the U.S. market.
AIP has become the key catalyst for Palantir, attracting new customers and driving higher revenues from existing ones. In the first quarter of 2025, Palantir reported $884 million in revenue, a 39% increase year-over-year. The company’s top-line growth rate has consistently accelerated over the past several quarters.
Its U.S. revenue remains solid, climbing 55% to $628 million in Q1, while commercial revenue in the U.S. jumped 71% to $255 million, reflecting the growing adoption of AI by enterprises. Bookings surged to $930 million, an 84% year-over-year increase, helping push the annual run rate for U.S. commercial revenue past the $1 billion mark.
The company’s customer base is growing rapidly, now totaling 769 clients, a 39% year-over-year rise.
Government contracts remain a vital revenue stream, contributing $487 million in Q1, up 45% from the prior year. With AI adoption accelerating across U.S. defense and public sectors, this segment continues to flourish.
Looking ahead, Palantir could continue to deliver significant revenue and expand its margins, led by higher demand for its AIP.
Palantir’s growth narrative is undeniably strong, particularly with its leadership in the AI software sector, and the market remains enthusiastic about the stock. However, despite the appeal of its momentum, the company’s current valuation appears excessively high and unsustainable.
Analysts remain cautious, with a consensus rating of “Hold” on the stock. The average price target of $104.94 suggests there could be a notable downside from current levels.
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On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
