Palantir Technologies Stock Soars as Investors Eye Future Gains

Palantir Technologies stock (NASDAQ: PLTR) has had a remarkable year, increasing nearly fourfold since January to approximately $66. Several elements contribute to this growth, including strong demand for AI, significant contracts from the U.S. government and commercial sectors, and a favorable technical environment. Let’s delve into the factors behind Palantir’s recent stock performance.

Political Climate and Government Contracts Boost Palantir

With a Republican administration in view, some investors see Palantir as part of a “Trump trade.” A potential increase in federal spending on national security and immigration could greatly benefit the company, which relies heavily on government contracts. Agencies such as the CIA and NSA utilize Palantir’s technology to enhance national security, particularly in tracking terrorist activity and managing immigration processes—priorities likely to escalate in a Trump administration. The company’s founders, including Peter Thiel, have close ties with Republican leadership, adding to investor optimism. 

Technical Enhancements and Analyst Upgrades

Several technical factors are contributing to the stock’s recent rise. Palantir transitioned its stock listing to the Nasdaq from the NYSE in late November and is expected to meet Nasdaq-100 Index eligibility requirements. This transition may heighten demand from exchange-traded funds. Furthermore, the company was recently added to the S&P 500 index, improving its visibility among institutional investors. Several Wall Street analysts have also raised their ratings, adding to the positive sentiment.

Strong Financial Performance in Q3

Palantir reported impressive financials for Q3, with revenue up 30% year-over-year to $726 million and a net income of $143.5 million—nearly double last year’s figure. The company’s GAAP net margins reached 20%, while adjusted operating margins were at 38%. Sales to government clients grew 33% to $408 million last quarter. Driven by robust U.S. commercial demand, Palantir has raised its FY’24 projections, anticipating over 50% growth in U.S. commercial revenue, targeting at least $687 million. The company’s Rule of 40 score of 68% reflects its efficient scaling strategy, balancing growth and profitability. 

Volatile Past Few Years for PLTR Stock

Over the past four years, Palantir stock performance has been inconsistent, experiencing significant volatility in comparison to the S&P 500. Annual returns include declines of 23% in 2021 and 65% in 2022, contrasted by a staggering 167% increase in 2023. Although the Trefis High Quality (HQ) Portfolio, composed of 30 selected stocks, has shown less volatility and outperformed the S&P 500 each year during this timeline, highlighting differential risk and return profiles.

Evaluating Current Valuations

Currently, Palantir stock trades at approximately 138x consensus earnings estimates for 2025, with over 43x forward revenue. These multiples appear quite elevated relative to its projected growth rates of around 25% for 2024 and 2025. For context, competitor Snowflake trades at roughly 12x its revenue despite similar growth. AI leader Nvidia’s stock trades at about 50x its estimated earnings for the current fiscal year, with robust revenue growth expected to double this year.

Insider Selling and External Risks

Notably, Palantir has seen a rise in insider selling, suggesting some investors believe the stock may be overvalued. While the market reacted positively post-election, inflation concerns, potential tariffs, and immigration policies remain risks that could influence interest rates and valuations for high-growth stocks like Palantir.

[1] Returns as of 11/26/2024
[2] Cumulative total returns since the end of 2016

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.