Palantir Technologies: Stellar Growth But Heavy Valuation Raises Questions
Palantir Technologies (NASDAQ: PLTR) has seen a remarkable run this year, skyrocketing over 340% as of now. Yet, this impressive growth has resulted in one of the highest valuations in the tech sector.
Currently, Palantir’s stock is trading at a striking forward price-to-sales ratio (P/S) of approximately 49.5 times next year’s analyst estimates. When accounting for its net cash position, this figure adjusts slightly to 49.2 on an enterprise-value-to-sales multiple (EV/S).
For context, during the peak of software-as-a-service (SaaS) valuations, comparable stocks traded at an EV/S multiple around 20 times, with growth rates exceeding 30%. In its latest quarter, Palantir reported a revenue growth of 30%.
Palantir initially gained a foothold by working with the U.S. government, providing critical data analytics to combat terrorism and monitor COVID cases. Recently, the company has made strides in the commercial arena with its AI offerings, alongside a pickup in its government contracts. However, the stock’s lofty valuation has raised concerns, especially as top executives, including the CEO and chairman, have been selling their shares in recent months.
Let’s explore two other rapidly growing companies whose stocks boast much more reasonable valuations.
1. Nvidia
Similar to Palantir, Nvidia (NASDAQ: NVDA) has also enjoyed significant gains this year, climbing about 190% to date. This company is accelerating rapidly, boasting a revenue growth of 94% last quarter.
Nvidia’s stock has a forward price-to-earnings ratio (P/E) of roughly 32.6 based on 2025 estimates. Notably, this P/E ratio is actually lower than Palantir’s P/S ratio, providing an interesting contrast between earnings and sales. Additionally, Nvidia is experiencing faster revenue growth.
As businesses invest in AI infrastructure, Nvidia stands to benefit immensely. Major tech firms are funneling capital into data centers to support AI applications and train large language models (LLMs). This is where Nvidia’s graphic processing units (GPUs) become crucial, powering the computing necessary for these advancements.
To illustrate this demand, Alphabet and xAI—backed by Elon Musk—are utilizing ten times more GPUs for the latest models compared to previous iterations. The competitive race for superior AI models ensures continued high demand for Nvidia’s GPUs.
Moreover, Nvidia has established a formidable presence in the GPU market with approximately 90% market share. Its well-developed software platform for programming GPUs has been adopted widely, solidifying its competitive edge.
Image source: Getty Images
2. GitLab
GitLab (NASDAQ: GTLB) offers a DevSecOps platform that enhances software development while integrating cybersecurity throughout the process. In the last quarter, GitLab outpaced Palantir with a revenue growth of 31% and boasts impressive gross margins of 89%.
The momentum behind GitLab is fueled by its GitLab Duo, a suite of AI-driven tools designed to help developers by providing code suggestions and automation features. This addition complements its Ultimate and Premier platforms, leading to increased deal signings.
GitLab is not just attracting new customers; it is also expanding within its existing customer base, showcasing a net revenue retention rate of 124%. Over the last six quarters, its revenue has consistently increased by 30% to 40%, reflecting solid and stable growth.
A recent partnership with Amazon Q aims to accelerate secure code development for AWS customers using GitLab Ultimate. The company is also seeking designations to pursue federal government contracts.
GitLab’s solutions allow organizations to enhance their software development efficiency while reducing costs. Research by Forrester indicates that users of GitLab Ultimate may see a remarkable 482% return on investment in three years. With its new partnerships and AI capabilities, GitLab is well-positioned for continued revenue growth.
Currently, GitLab’s stock trades at a forward P/S ratio of 11.5, significantly lower than Palantir’s 49.5, despite similar revenue growth rates. As a result, GitLab presents a compelling alternative for investors seeking value.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, GitLab, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
