Palantir Technologies (PLTR) has been among the best-performing stocks over the past 12 months, driven by improving earnings, enthusiasm for artificial intelligence (AI), and the election of an ally to The White House. However, not everyone is bullish. A few weeks ago, Goldman Sachs analyst Gabriela Borges reiterated a Hold rating on the stock to remind us that what goes up tends to come down eventually.
I’m turning bearish on this AI superpower without prejudice because justifying its sky-high valuations is for speculators, not value investors. Whenever a stock is trading at exorbitant levels disconnected from fundamentals, it’s only a matter of time before a tidal wave of satisfied shareholders, short-sellers, and profit-takers comes to claim their piece of the pie.
Palantir’s Valuation From Another Planet
Palantir’s valuation is out of this world, with its astronomical P/S ratio of 97.9x dwarfing the sector median of 3.3x. This puts Palantir at a staggering 2,827% premium to its peers, a figure that’s hard to justify even for ultra-bulls. The company’s forward P/E ratio of 225.5x is equally stratospheric, sitting 775.2% above the sector median.
Even after recent pullbacks, Palantir’s valuation is top-heavy, to say the least. Its 2025 estimated P/E ratio is expected to gradually descend to 79.5x by 2028, but these figures still represent a significant premium over industry norms. The company’s EV-to-sales ratio of 100.3x further underscores its lofty valuation, exceeding the sector median by an eye-watering 2,716%.
Palantir’s growth story, while impressive, with a projected 34.8% sales growth in 2025, doesn’t justify its triple-digit P/S ratio. Compared to high-growth peers, Palantir is overpriced.
While Palantir’s position in the AI value chain and potential for disruption in data analytics warrant enthusiasm, investors should approach cautiously. The company’s valuation metrics are consistently unattractive compared to its sector, suggesting that even in a high-growth industry, Palantir’s valuation is truly in a league of its own. Reinforcing this point, it has the fourth highest price-to-sales ratio among companies with a market cap above $10 billion.
Pete Hegseth’s Comments Could Sink Palantir
With this valuation in mind, it’s clear that the company was priced for perfection and that any little bump could see the share price plummet. We saw that on Wednesday, February 19, after a memo from Defense Secretary Pete Hegseth, obtained by the Washington Post, called for a cut in defense spending over the course of the current administration.
The proposed 8% annual defense budget cuts over the next five years could significantly impact PLTR, given its heavy reliance on U.S. government contracts, which account for over half of its revenue. In fact, data shows it has become more dependent on the U.S. market in recent years, with more than 60% of sales derived from Washington.
So, with defense spending reductions targeting broad areas, Palantir may face a slowdown in contract renewals or new opportunities, particularly in non-exempt categories like general analytics or surveillance software. This could pressure its high valuation metrics, including a P/S ratio of nearly 100x, already criticized as excessive.
Institutional Analysts Drive PLTR Stock Higher
The company’s bull run is arguably sustained by a broadly positive outlook from analysts at major financial institutions. Palantir Technologies stock jumped in early February following an impressive fourth-quarter earnings beat and a strong outlook, garnering praise from analysts.
Bank of America (BAC) recently reiterated its Buy rating and raised its price target to $125, citing Palantir’s unique value proposition in an increasingly crowded AI market. The analysts expect Palantir to remain a value-adder, focusing on operationalizing data and accelerating decision-making.
Investment bank Morgan Stanley (MS) upgraded Palantir to Equal-weight from Underweight, increasing its price target to $95. The firm noted Palantir’s sixth consecutive quarter of accelerated growth, driven by strong performance in U.S. commercial and government sectors.
These positive assessments from major institutions likely contribute to Palantir’s continued bull run, as analysts recognize the company’s potential to lead in both commercial and defense markets amidst the ongoing AI revolution.
What Do Hedge Fund Managers Think About PLTR?
Despite its headline-grabbing exploits and rubbing shoulders with political and economic bigwigs, Palantir hasn’t convinced hedge fund managers. Smart institutional money doesn’t seem to like PLTR stock.
According to TipRanks’ hedge fund tracker, top-tier hedge fund managers currently view PLTR with low confidence. According to 13F filings from 488 hedge funds submitted to the U.S. SEC, PLTR stock’s higher highs since mid-2024 have coincided with hedge fund managers reducing their stakes from just under 24 million shares to around 12 million today. The current hedge fund confidence signal based on 24 leading hedge funds is Very Negative.
Is PLTR Stock a Good Buy?
Wall Street analysts are evenly split on PLTR stock, carrying a Hold consensus rating based on four Buy, nine Hold, and five Sell ratings over the past three months. PLTR’s average price target of $93.13 per share implies approximately 4% upside potential over the next twelve months.
Overhyped and Overpriced, PLTR Stock Has Gone Too Far
I’m bearish on Palantir Technologies because its valuation remains excessively high despite recent pullbacks. The stock’s premium to peers is extreme, and the risk of defense budget cuts adds further downside potential. While Palantir’s AI capabilities may offer long-term opportunities, its current multiples demand near-flawless execution. Institutional support has helped sustain its rally, but the company remains priced for perfection. Given the risks and inflated valuation, Palantir’s pullback doesn’t present a compelling entry point at this stage, leaving Wall Street divided regarding the stock’s ultimate future trajectory.