Palantir Technologies: A Year of Gains, but What Lies Ahead?

Palantir Technologies (NASDAQ: PLTR) has seen its stock value soar over 333% in the past year, largely due to the surge in generative artificial intelligence (AI). As the tech landscape shifts, investors are left to ponder if Palantir’s growth can continue or if it might face challenges in the future.

From Early Innovator to AI Leader

Founded in 2003, Palantir has made a name for itself in the big data analytics space, focusing on extracting meaningful insights from massive datasets. The rise of generative AI represents a significant opportunity for the company, especially after the popularity of large language models (LLMs) like ChatGPT, which gained attention in late 2022.

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

Recognizing the potential of generative AI, Palantir quickly integrated this technology into its software-as-a-service (SaaS) solutions. Notably, its new Artificial Intelligence Platform (AIP) aids military personnel in real-time identification and targeting of enemy assets. This innovation has garnered significant interest from government clients.

In May, Palantir secured a $480 million contract with the Department of Defense for its Maven Smart System, an AI-focused platform that enhances battlefield oversight and decision-making. Additionally, its military software services have been adopted by the governments of Israel and Ukraine in their respective conflicts.

Steady Growth, but Challenges Ahead

Palantir’s most recent quarterly earnings showcased a year-over-year revenue increase of 30%, reaching $726 million, highlighted by securing 104 large contracts worth over $1 million each. The company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was reported at $283.6 million, which included $142.4 million in stock-based compensation.

While stock-based compensation can motivate employees and help manage cash flow in young companies, it poses risks for shareholders. Currently, Palantir allocates about half of its adjusted EBITDA and nearly all its net income assigned to common stockholders towards this compensation, raising concerns for long-term investors.

Image source: Getty Images.

Looking ahead, maintaining this growth rate could prove difficult. Despite the company’s recent hype, it doesn’t seem to have any unique advantages that competitors can’t replicate. For example, Microsoft provides a competing SaaS platform known as Fabric and benefits from advanced LLM access due to its partnership with OpenAI. As the competitive landscape evolves, Palantir may face increasing pressure on its growth trajectory.

Is Palantir Overvalued?

Palantir’s valuation currently appears to overlook some potential risks. It has a forward price-to-earnings (P/E) ratio of 164, ranking it over 5.6 times higher than the S&P 500 average of 29. This valuation stands in stark contrast to other rapidly growing AI companies, such as Nvidia, which trades at only 33 times its forward earnings, despite a remarkable revenue growth of 94% in the latest quarter.

The financial markets often behave unpredictably, making it challenging to forecast how long Palantir’s stock can sustain its lofty price levels. Nevertheless, given its current valuation, there are indications that shares may struggle to perform well in 2025 and beyond.

Opportunity Awaits for Savvy Investors

Have you ever thought you missed out on investing in successful stocks? You might want to consider this opportunity.

Occasionally, our expert analysts suggest a “Double Down” stock recommendation for companies poised for significant growth. If you feel you’ve overlooked your investment chances, acting now could prove beneficial before it’s too late. Here are the impressive results of past recommendations:

• Nvidia: Investing $1,000 when we recommended it in 2009 would have turned into $320,756!
• Apple: A $1,000 investment back in 2008 would be worth $45,331 today!
• Netflix: $1,000 invested in 2004 would yield a staggering $527,508!

Currently, we are issuing “Double Down” alerts for three outstanding companies, and this could be a rare opportunity.

Learn more »

*Stock Advisor returns as of January 27, 2025

Will Ebiefung has no positions in any of the stocks mentioned. The Motley Fool recommends Microsoft, Nvidia, and Palantir Technologies, and it also has specific trading options regarding 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.