The stock was on a tear in 2024, but appears to be overvalued.
After a tremendous 2024, when it rose 340%, Palantir (PLTR 1.81%) hasn’t had nearly as great a 2025. To start the year, the stock dipped more than 10%. Given how hot an artificial intelligence (AI) stock Palantir is, many investors might wonder if this dip is a buying opportunity.
Palantir is certainly growing quickly and has a fantastic product, but one thing gives me pause as a potential investor.
Palantir has a widely diversified customer base
Palantir has been in the AI game longer than most companies. It was founded in May 2003 and was created to provide AI solutions to government clients. That turned out to be a massive success, and the company eventually expanded into the commercial side.
Palantir’s software essentially takes data in, processes it through a custom-built AI platform for each client, and then displays this information on a dashboard so that those with decision-making authority (be it in the military or at an insurance company) can make the most informed decision possible. That was the original premise of Palantir’s software, but its latest product has driven massive demand, especially in the U.S. commercial sector.
Palantir’s Artificial Intelligence Platform (AIP) gives its users the tools they need to integrate AI models into workflows rather than something that is used on the side. Furthermore, AIP has the ability to integrate AI agents to automate tasks that humans normally do. With many prominent AI CEOs declaring that 2025 will be the year of agentic AI, Palantir is a stock to watch as it is one of the leaders in this space.
With a leading product in an important space, it’s no wonder Palantir’s growth has been solid. In Q3, Palantir’s total revenue rose 30% year over year to $726 million. However, the U.S. commercial sector saw faster-than-average growth, with revenue rising 54% year over year to $179 million. Even U.S. government revenue exceeded the mean, as it was up 40% year over year to $320 million.
Clearly, the U.S. is outpacing the rest of the globe’s demand for AI software, and a key part of the Palantir investment thesis is that the rest of the world will eventually have similar AI demand as the U.S. Still, there’s plenty of room to grow in the U.S.
While Palantir has reached most of its government clients, it only scratched the surface of its U.S. commercial potential. It only has 321 U.S. commercial clients, so there’s clearly room for expansion.
There’s still a lot of growth left for Palantir, but the stock has one glaring problem.
The stock may need a deeper sell-off before its price can be justified
Although all of this growth looks promising, the issue is that it’s already baked into the stock price. Let’s take the bull case, which might state that Palantir’s revenue growth will accelerate to 40% by next year due to capturing international business as well as signing more U.S. commercial clients.
If Palantir maintains that 40% growth rate for the next five years alongside its current 20% profit margin, it will produce $14.2 billion in revenue and $2.85 billion in profits. While that’s incredible growth, Palantir’s stock would trade at 53 times trailing earnings if the stock price did not move from today’s levels.
PLTR Revenue (TTM) data by YCharts
For reference, Nvidia , a company that’s expected to grow sales by 52% next year, trades for 52 times earnings right now. Wall Street analysts only expect Palantir’s revenue to grow by 25% in 2025, so the 40% annual growth for five years is an extremely bold and likely wrong prediction. As a result, even attaining the price-to-earnings (P/E) ratio I outlined above would be incredibly difficult.
There’s just too much growth baked into the stock right now to justify the price tag, and I wouldn’t be surprised if this selling continues. While Palantir will be a massive winner as a company in the AI arms race, there’s no way to justify the current price tag with the growth it’s delivering.
Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
Palantir Stock Is Down 10% to Start 2025. Time to Buy the Dip on This Explosive AI Stock?
Investors in Palantir Technologies (NYSE: PLTR) were met with a surprise as the stock opened the year down 10% from its previous closing price. This drop comes after a strong performance in 2024, where the company’s stock price surged over 100%.
With Palantir being a key player in the artificial intelligence and data analytics space, many investors are wondering if now is the time to buy the dip on this explosive stock.
Palantir’s software platforms are used by government agencies, financial institutions, and other large organizations to analyze and make sense of massive amounts of data. As the demand for data analytics and AI continues to grow, Palantir’s services are likely to remain in high demand.
While the recent drop in stock price may be concerning to some investors, it could also present a buying opportunity for those who believe in the long-term potential of the company. Palantir has consistently delivered strong revenue growth and has a solid track record of acquiring new clients.
Additionally, the company’s recent partnerships with major tech companies like IBM and Amazon could further drive growth in the coming years.
Of course, as with any investment, there are risks to consider. Palantir operates in a highly competitive industry, and there are concerns about potential regulatory challenges. However, for investors who are willing to take on some risk, the current dip in Palantir’s stock price could be an attractive entry point.
Ultimately, the decision to buy Palantir’s stock will depend on individual risk tolerance and investment goals. But for those who believe in the future of AI and data analytics, now could be a good time to consider adding Palantir to their portfolio.
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