Palantir Technologies: A Volatile Investment with High Rewards and Risks

Shares of Palantir Technologies (NASDAQ: PLTR) have soared 370% this year, fueled by strong results from its artificial intelligence platform and a notable listing in the S&P 500 and Nasdaq-100. However, hesitant investors should weigh Wall Street’s view that Palantir may be one of the most overvalued stocks today.

Analysts Warn of Potential Downside

The median 12-month price target among 22 analysts covering Palantir is $41 per share, according to The Wall Street Journal. This suggests an expected drop of 49% from the current share price of $80.50. It’s important to note that the median is the midpoint, indicating that half of analysts predict a more significant fall. Even the highest target, at $80, points to potential declines.

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Supporters See a Different Picture

Some analysts, like Dan Ives from Wedbush, argue that Palantir is misunderstood by many market watchers. Ives suggests that Palantir could evolve into the next Oracle, a software giant valued at $500 billion. Although Ives remains optimistic about its future, he acknowledges the likelihood of a price drop over the next year.

Palantir Excels in AI Software

Palantir specializes in data analytics software. Its Gotham and Foundry platforms enable businesses to integrate data and machine learning models into an ontology, which acts as a digital map defining relationships between real-world objects. This allows for enhanced decision-making; for example, a manufacturing company could use it to consolidate data from machines and inventory systems to optimize production and identify bottlenecks.

Recently, Palantir launched its AI platform, AIP. This innovative tool supports large language models in its Gotham and Foundry systems, allowing businesses to apply generative AI to everyday operations. A manufacturing firm could ask AIP in simple terms to find the root cause of quality issues, tracing defective products back to specific materials or machinery.

Palantir claims that its focus on ontology sets it apart from other analytics software, and AIP has received recognition. Forrester Research has ranked it as a leader in AI and machine learning, highlighting its superior performance compared to products from Microsoft and Alphabet. Analysts note, “Palantir is quietly becoming one of the largest players in this market.”

Given the projected rapid growth of AI platform spending, anticipated to increase by 51% annually through 2028, Palantir is positioned well to benefit from this trend. Andrea Minonne at the International Data Corp. notes that “AI platforms will be the fastest growing technology in the years to come,” suggesting robust future support for Palantir’s business.

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Revenue Growth Accelerates

In the third quarter, Palantir showcased impressive financial results. Its customer count surged by 39% to 629, with existing customers spending 18% more. This led to a revenue increase of 30% to $726 million, marking the fifth consecutive quarter of growth acceleration. Non-GAAP earnings rose 42% to $0.10 per diluted share.

Management attributes this positive performance to high demand for AIP. CEO Alex Karp stated, “We absolutely eviscerated this quarter, driven by unrelenting demand for AI that won’t slow down.” He declares, “The world will be divided between the AI haves and have-nots. At Palantir, we plan to power the winners.”

Since the quarter concluded, Palantir has also secured a $37 million contract with the U.S. Special Operations Command and received a FedRAMP High Authorization, enabling its products to support sensitive unclassified government operations. These developments hint at the potential for more future contracts.

Concerns on Valuation

Despite its growth, Palantir faces significant valuation challenges. The stock is currently trading at 230 times adjusted earnings, a steep premium compared to almost all other software firms. This is particularly striking given that Palantir’s earnings are expected to grow 31% in the coming year, leading to a price-to-earnings-to-growth (PEG) ratio of 7.4.

For context, Nvidia, for instance, boasts a PEG ratio of 1, while Meta Platforms and Amazon have ratios of 1.8 and 1.9, respectively. Even Tesla‘s high PEG ratio of 6 appears relatively modest when compared to Palantir’s valuation. Although Palantir shares have consistently risen, it is important to recognize that no stock is worth buying at any price. Buying Palantir shares today may carry significant risk.

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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.

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