Palantir Technologies (PLTR) stock surged following the re-election of Donald Trump to The White House. Despite CEO Alex Karp’s opposition to Trump, the AI software company seems to have found support due to the close ties between Peter Thiel and soon-to-be vice president JD Vance. However, I’m bearish on the stock, simply because the valuation is very hard to sustain at this moment in time. While the company may experience a wealth of tailwinds when Trump is in office, we don’t know how large these tailwinds will be. As such, Palantir stock could be a rather speculative investment right now.
Stay Ahead of the Market:
- Discover outperforming stocks and invest smarter with Top Smart Score Stocks
- Filter, analyze, and streamline your search for investment opportunities using Tipranks' Stock Screener
Palantir’s Tailwinds May Not Be Enough
Despite my bearish stance, it’s important to acknowledge the potential positives for Palantir’s stock following Trump’s election and the ongoing artificial intelligence (AI) boom. Palantir, which specializes in platforms for data integration and analysis, has seen its market capitalization surge by over $50 billion since Trump’s victory, reflecting investor optimism about increased federal spending on national security, immigration, and space initiatives.
The company’s strong ties to the new administration, including Peter Thiel’s support for Trump and JD Vance, could lead to favorable treatment in government contracts. In fact, Thiel mentored Vance, helped him gain jobs, and heavily funded his political career. In addition to this very personal connection, Palantir is well-positioned to benefit from Trump’s focus on defense and border security. Indeed, the company recently secured a $480 million contract to enhance the Pentagon’s AI battlefield intelligence initiative, Project Maven.
Additionally, Palantir’s involvement in the Starlab consortium for a commercial space station aligns with Trump’s interest in space exploration. Moreover, the AI boom continues to drive Palantir’s growth, with revenue increasing 30% year-over-year in recent quarters. The company’s AI platform (AIP) has garnered significant commercial interest, expanding its client base beyond government contracts, and this diversification, coupled with improved profitability, has fueled investor enthusiasm. However, despite this enthusiasm, we can’t truly forecast how strong these Trump-driven tailwinds will be. The current forecasts for revenue growth are strong, but as noted below, they are not enough to justify the current valuation.
Here’s What Makes Palantir Unique
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.
Fundamentals Are Great, but Valuation Isn’t
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.
Is Palantir Stock a Buy, According to Analysts?
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.
The Bottom Line on Palantir Stock
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.
