Palantir Surges as Q4 Results Exceed Expectations but Faces Valuation Concerns
Palantir Technologies (NASDAQ: PLTR) recently announced impressive fourth-quarter financial figures, significantly outpacing Wall Street projections. As a result, its stock price has soared, achieving a remarkable total return of 585% since January 2024.
During this time, Palantir has emerged as the top performer within the S&P 500 (SNPINDEX: ^GSPC), outperforming its nearest competitor by an astonishing 250 percentage points. Nevertheless, the company now stands among the most expensive software stocks ever, raising questions about the sustainability of its valuation.
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Here are the key insights.
Palantir: A Software Stock with Historical Valuation Implications
Brent Thill from Jefferies commended Palantir’s fourth-quarter performance in a recent interview on CNBC. However, he highlighted that the stock currently boasts a forward price-to-sales (PS) ratio exceeding 55, a figure rarely held by any software company, let alone consistently maintained. This ratio represents the market value divided by anticipated yearly revenue.
My own research confirmed this finding. After analyzing over 50 software firms from the past decade, I noted the following:
- Only five companies (excluding Palantir) have surpassed a forward PS ratio of 40: Asana, Confluent, Snowflake, UiPath, and Unity Software.
- Among these, only Snowflake has breached the 50 mark, reaching almost 60 times forward sales in November 2021.
- After hitting their peak values, all five stocks experienced declines of over 50% within the following year, with maximum drops exceeding 70%, and they remain at least 50% below their highest valuations today.
As of February 13, Palantir holds a forward PS ratio of 56. Snowflake is the only other software company that has achieved a higher ratio in the last decade. Its stock experienced a sharp decline after reaching near 60 times its forward sales, a concerning trend considering Snowflake’s rapid revenue growth at that valuation.
In contrast, Palantir’s trailing 12-month (TTM) revenue rose only 29% in 2024, with expected growth of just 32% in 2025. The stock’s striking 585% increase since January has added upward pressure on its valuation ratio, solidifying its place as one of the priciest software companies ever.
While Palantir seems unlikely to face immediate consequences, data suggests that its forward PS multiple will decline over time. This change can occur in three main ways: analysts could significantly raise revenue forecasts, Palantir’s stock could see a sharp decline, or a combination of both scenarios might unfold.
Image source: Getty Images.
Palantir’s Strengths and Risks in Today’s Market
According to the International Data Corporation (IDC), Palantir is a leading figure in decision intelligence software. Additionally, Forrester Research recognized Palantir as a technology frontrunner in artificial intelligence platforms, giving superior ratings to its AIP product compared to comparable offerings from Alphabet‘s Google, Amazon, and Microsoft.
This positioning places Palantir in a favorable scenario. IDC predicts that spending on AI platforms will surge annually by 40% through 2028, indicating promising growth prospects. Yet, even a top-tier business isn’t a sound investment at any cost. The company’s high forward PS multiple serves as a warning signal that should not be overlooked.
Current investors might consider reducing their stock holdings, especially if Palantir constitutes a large part of their portfolio. Likewise, potential investors should monitor the stock closely, as more advantageous buying opportunities may appear in the future.
For comparison, even though Snowflake is presently 52% below its peak, it stands 77% above its lowest trading point. Thus, investors have had ample chances to profit from Snowflake’s recovery since its steep decline in early 2022. A similar experience may await Palantir; the key will be to wait for a favorable price before considering investment, rather than succumbing to the allure of its currently high valuation.
Is Now the Right Time to Invest $1,000 in Palantir Technologies?
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John Mackey, former CEO of Whole Foods Market, and an Amazon subsidiary, serves on The Motley Fool’s board. Suzanne Frey, an executive at Alphabet, is also a board member. Trevor Jennewine holds positions in Amazon, Palantir Technologies, and UiPath. The Motley Fool recommends several companies including Alphabet, Amazon, Jefferies Financial Group, Microsoft, Palantir Technologies, Snowflake, UiPath, and Unity Software, and notable mentions such as Asana and Confluent. 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.
