Shares of Palantir Technologies (PLTR 8.54%) have advanced 370% this year. Factors contributing to that upside include strong financial results driven by demand for its artificial intelligence platform, as well as the company’s inclusion in the S&P 500 and Nasdaq-100. But investors should think twice before buying shares. Wall Street sees Palantir as one of the most overvalued stocks on the market.
The median 12-month target among the 22 analysts that follow Palantir is $41 per share, according to The Wall Street Journal. That implies 49% downside from the current share price of $80.50. Importantly, median refers to the middle value, meaning half the analysts following Palantir expect the stock to fall more than 49%. Even the highest 12-month target of $80 per share implies downside.
That said, certain analysts — like Dan Ives from Wedbush — believe most pundits misunderstand Palantir. He believes it could be the next Oracle, a comparison that likens the company to a $500 billion software giant. Ives thinks Palantir could grow into that valuation over the next three to four years. So, not all Wall Street analysts are equally bearish, but even Ives sees downside in the stock in the next 12 months.
Here are the pros and cons of buying stock in Palantir.
Palantir is a leader in artificial intelligence software
Palantir sells data analytics software. Its Gotham and Foundry platforms let clients integrate information and machine learning models into an ontology, a digital map that defines the relationships between real-world objects. Ontology data can be queried with analytical applications that improve decision-making. For instance, a manufacturing company could consolidate and query data from machine sensors and inventory systems to monitor production and identify potential bottlenecks.
Last year, Palantir launched its artificial intelligence (AI) platform, AIP, which adds support for large language models to Gotham and Foundry. AIP lets businesses apply generative AI to their operations. For instance, the manufacturing company could prompt the platform in natural language to identify the root cause of quality issues by tracing defective products back to specific raw materials and machines.
Palantir says its ontology-centric architecture differentiates its platforms from other analytics software, and AIP has been an unmitigated success. Forrester Research earlier this year ranked the company as a leader in artificial intelligence and machine learning software, awarding AIP higher scores than similar products from Microsoft and Alphabet. “Palantir is quietly becoming one of the largest players in this market,” analysts commented.
That bodes well for the company and its shareholders. AI platform spending is projected to increase at 51% annually through 2028. Indeed, Andrea Minonne at the International Data Corp. says, “AI platforms will be the fastest growing technology in the years to come.” That means Palantir should have a powerful tailwind behind its business in the next few years.
Image source: Getty Images.
Palantir’s revenue growth is accelerating
Palantir delivered an encouraging financial performance in the third quarter. Its customer count increased 39% to 629, and the average existing customer spent 18% more. In turn, revenue jumped 30% to $726 million, the fifth straight sequential acceleration. Meanwhile, non-GAAP earnings soared 42% to $0.10 per diluted share.
Management attributed the strong numbers to incredible demand for AIP. “We absolutely eviscerated this quarter, driven by unrelenting demand for AI that won’t slow down,” CEO Alex Karp said in characteristically colorful language. “The world will be divided between the AI haves and have-nots. At Palantir, we plan to power the winners.”
Palantir has made a few important announcements since the quarter ended. It won a $37 million contract with the U.S. Special Operations Command, and it was awarded FedRAMP High Authorization, meaning its entire product portfolio can be used for sensitive unclassified workloads by the U.S. government. That could lead to more government deals in the future.
Palantir stock trades at an unreasonably expensive valuation
Palantir has a valuation problem that investors cannot afford to ignore. The stock trades at 230 times adjusted earnings, an unjustifiable premium to virtually every software company. That valuation is particularly absurd because Palantir’s earnings are expected to increase 31% over the next 12 months. Those numbers give the company a price-to-earnings-to-growth (PEG) ratio of 7.4.
For context, using the same methodology, Nvidia has a PEG ratio of 1, Meta Platforms has a PEG ratio of 1.8, and Amazon has a PEG ratio of 1.9. Even Tesla‘s outrageously high PEG ratio of 6 is relatively cheap compared to Palantir’s price tag. It has been easy to ignore valuation so far because Palantir shares have done nothing but move higher. However, not even the best stock is worth buying at any price. Investors that buy shares of Palantir today are taking on unnecessary risk.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon, Nvidia, Palantir Technologies, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Oracle, Palantir Technologies, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.