Palantir Stock’s (PLTR) Valuation Is Hard to Defend despite White House Ally

Building on this, and despite my bearishness, I respect the company’s unique value proposition. Palantir Technologies has emerged as a fairly distinctive force in the tech landscape, building on years of intelligence-focused work and seamlessly blending SaaS expertise, AI leadership, and defense contracting capabilities. The company’s journey began in the early 2000s by providing data-centric solutions to the U.S. government for counterterrorism efforts.

This early AI adoption has positioned Palantir at the forefront of the current technological revolution and means it’s somewhat entrenched in government operations. These established government relationships create significant barriers to entry, with recurring revenues from the defense and intelligence sectors. Moreover, its supposed superiority stems from a deep understanding of data ontologies, which has enabled the development of superior large language models.

This is supported by substantial R&D investments totaling $446 million — around double what peer C3.ai (AI) spends. In addition to this, the company’s innovative “supercloud” approach allows platform interoperability across cloud solutions, expanding its potential for widespread industry adoption. In short, Palantir has built a robust ecosystem and is leveraging strategic partnerships. This certainly makes it a company to watch, especially with an ally in The White House.

However, my bearishness is simply related to the company’s valuation despite strong fundamentals. The company recently highlighted that its Rule of 40 score — revenue growth + adjusted operating income margin — of 68% is the highest it has been going back to Q4 2022, which goes a long way to highlighting the strength of the business. However, the stock’s valuation metrics are extremely elevated. Palantir’s forward price-to-earnings (P/E) of 176.8x is 618.7% above the sector median. Moreover, the company’s enterprise value-to-sales (TTM) ratio of 56.3x is a staggering 1,569.5% higher than the sector median.

Despite projected earnings growth, with consensus EPS growth rates of 52.1% for 2024 and 25.5% for 2025, the stock’s valuation remains stretched. The forward P/E ratios for 2025 and 2026 are estimated at 140.9x and 116.7x, respectively, which are still significantly above industry norms. Moreover, the all-important price-to-earnings-to-growth (PEG) ratio now sits at 6.4 — 252.1% above the sector average.

While Palantir’s strong performance in both government and commercial sectors is commendable, the current valuation of 54x forward revenue suggests investors are pricing in sustained exceptional performance. This leaves little room for error and could lead to significant downside risk if the company fails to meet these lofty expectations.

On TipRanks, PLTR comes in as a Moderate Sell based on two Buys, eight Holds, and seven Sell ratings assigned by analysts in the past three months. The average PLTR stock price target is $46.57, implying a 31.7% downside risk.

See more PLTR analyst ratings

I’m bearish on Palantir stock due to its inflated valuation, which significantly exceeds industry norms. While the company benefits from strong fundamentals, AI-driven growth, and ties to the incoming administration, these positives are overshadowed by the speculative nature of its current pricing. Palantir’s potential tailwinds may not justify its lofty metrics, leaving limited upside and substantial risk for investors.

Disclosure