Palantir Technologies (PLTR) was the AI front-runner in 2024, and its continuing that streak in 2025. However, with macro headwinds in full force, the stock is down nearly 38% from its peak. For bargain-hunting investors, Palantir appears to be a clear sell. The company’s growth projections and historical performance suggest that its current price is still far from justified, even after the recent pullback.
However, for long-term investors like myself, who recognize Palantir as a key player in the AI era and believe it could eventually become a trillion-dollar company (perhaps within the next decade), the current weakness presents a discounted buying opportunity. I’m firmly bullish on PLTR stock and see the recent sell-off as a ticket to attain exposure to the AI boom via a politically green-lit entity that has smart money backing it.
While it’s tough to justify Palantir’s valuation, even in an ultra-bullish scenario, the company has uniquely positioned itself to capitalize on the relentless demand for AI-driven software. Moreover, Palantir has managed to balance growth and profitability better than any other software company. I believe continuing to buy Palantir above long-term moving averages still makes sense, and I maintain a Buy stance on the stock.
Palantir’s Tumbling Stock and the Perfect Storm of Risks
Since February 18, Palantir’s shares have taken a nosedive, falling nearly 40% from their peak and plunging deep into correction territory. While this decline can be attributed to the stock’s high sensitivity to the broader market (with a 2.8 beta), another major factor is the U.S. Secretary of Defense’s recent memo, outlining an 8% cut in defense spending over the next five years. It’s important to note that in FY2024, Palantir’s U.S. government revenue accounted for 63% of the company’s total U.S. revenue.
Adding to the bearish sentiment, Palantir’s CEO, Alex Karp, recently sold $45 million worth of stock, unloading about 22% of his total stake over the last six months. While insiders sell shares for various reasons, the timing here raises eyebrows. With Palantir’s valuation already stretched—potentially beyond what’s reasonable for a software company—the market could be factoring in risks from a peak stock price and the looming cuts in U.S. government spending, which could affect Palantir’s growth expectations.
Valutions Pose Risk for PLTR’s Bullish Case
On one hand, Palantir’s business fundamentals are thriving, with operating income growing by about 160% year-over-year and revenues increasing nearly 30%. The company is capitalizing on AI trends like few others in the tech space. But on the other hand, Palantir’s valuation has stretched so much that only a very strong bull case could justify its current share price.
Let’s break it down with a discounted cash flow (DCF) analysis. If we assume Palantir will grow revenues at a 39% CAGR over the next five years—well below the analysts’ consensus of 26.3%—and operating margins will grow at 15% CAGR during the same period, reaching an impressive 78.6% in year five, while factoring in a 10% annual change in working capital and using a more aggressive discount rate of 8%, we’d get an implied share price of roughly $78.90. That’s a tiny upside from the current post-February selloff levels of about $78 per share, but still far from the all-time highs of mid-February when it hit $124 per share.
However, it’s important to note that this cash flow projection is just a starting point. Market premiums play a role when comparing the implied price to the actual market price, suggesting that the market has already factored in future growth potential or a low-risk profile—something the DCF model doesn’t fully account for. That said, in my view, for this to hold true, expectations would need to become more bullish, which is difficult to imaging for PLTR bears.
How Sustainable is the Bullish Case for Palantir?
While it’s tough to back such ambitious growth metrics for the DCF bull case over the next five years, I do think there’s some support for these assumptions based on Palantir’s recent performance. The company has steadily grown revenues and improved its margins—something that’s rare for most companies. Typically, higher growth comes with lower margins, and lower growth leads to higher margins. But Palantir has managed to defy that norm, benefiting from the huge demand for AI. As companies continue to pay higher prices for contracts due to the efficiencies Palantir’s software brings, the company has thrived like few others.
One key metric for evaluating the sustainability and efficiency of software companies is the Rule of 40. This rule is simply the sum of a company’s revenue growth rate and operating margin, where hitting 40% signals a solid balance between growth and profitability.
For Palantir, in Q4, the company grew revenues by 36% year-over-year while posting operating margins of 45%, resulting in a combined total of 81%. For the full year 2024, Palantir’s Rule of 40 stands at an impressive 68%. For context, Microsoft (MSFT), the largest software company in the world, had a Rule of 40 of 57.9% in its most recent quarter, and Oracle (ORCL), the second largest, posted 58%. In other words, Palantir currently manages the best balance of growth and high margins among SaaS companies.
Of course, the higher the Rule of 40 percentage, the harder it becomes to keep that growth going at the same pace. It requires even more growth at even higher margins, which will eventually plateau. However, from Q1 2024 to Q4 2024, Palantir’s percentage increased from 57% to 81%, showing that the bull case needed to justify its valuations—where both revenue growth and operating margins need to grow simultaneously—is indeed achievable at these high rates.
Is Palantir a Buy, Sell, or Hold?
Out of 18 Wall Street analysts covering the stock over the past three months, four recommend a Buy, while ten suggest a Hold and another four advise a Sell. PLTR’s average price target is $95.33 per share, implying ~18% upside potential from the current share price.
PLTR Tech Potential Overpowers Valuations Concerns
Palantir is a great stock that should be bought into at the right valuation. Realistically, even with overly optimistic assumptions, it’s tough to see Palantir sustaining growth rates that would justify the business being worth much more than its current share price—even while it’s been in correction territory since mid-January.
It seems that many bulls have based their thesis on Palantir becoming the next Big Tech giant, potentially reaching a market cap similar to Nvidia, Apple, or Microsoft in the near future. The problem is, that this could take much longer than just five years, even when projecting overly aggressive growth rates and using an unrealistically low discount rate that overlooks the company’s risk profile.
On the other hand, Palantir is widely seen as having strong growth potential as a transformational tech leader in the long run. In this case, I believe the company deserves a sizable premium that no spreadsheet can fully capture due to its growth story. So, I think taking advantage of the current share price weakness could be a solid opportunity, especially since the stock is trading well above its 100-day and 200-day moving averages.
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