Palantir Technologies (PLTR) has emerged as a remarkable performer this year, witnessing a rise of over 160% year-to-date and more than 340% in the last 12 months. However, this explosive growth has resulted in valuations that seem excessively high, which leaves investors with little room for error.
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Palantir is enjoying benefits from the AI boom, and its data analytics platform is seeing increased use across both corporate and governmental sectors. Yet, it seems the balance of risk versus reward is increasingly skewed towards the downside. It appears to me that much of the company’s leadership in AI and its strong brand presence may already be priced into the stock.
With earnings set to be released next week, many in the market are keeping a close eye on PLTR. The critical question will be whether investors continue to respond optimistically regarding AI despite the lack of equally substantial fundamental growth, or if the lofty valuations will have to confront the harsh realities of finance.
Q3 high bar set
Palantir is preparing to announce its Q3 2025 earnings on November 3rd, with analysts predicting an EPS of $0.17 and revenue of $1.09 billion. Over the past year, expectations for earnings have risen by 54% and revenue estimates by 29%, showcasing increased optimism from both Wall Street and retail investors.
Still, I can’t shake the feeling that expectations might be too high, which could lead to disappointment. Palantir has only missed its profit goals once over the last 12 quarters, yet the current target seems ambitious. Personally, I expect a modest rise in total contract value (TCV), though annual growth rates may decline mainly due to slower commercial demand.
I anticipate government revenues to show an increase of around 50% year-on-year, slightly above the consensus estimate of 48%. However, investors might start to focus on how U.S. budget uncertainties and the lingering effects of a federal government shutdown could affect contract performance in the upcoming quarter.
On the commercial side, it’s a bit more complicated. Feedback indicates high turnover rates among clients and a gradual adoption of the AI platform. While the management will likely emphasize the long-term aims and increasing role in AI-driven decisions, I remain skeptical about short-term monetization trends and whether Palantir can sustain its current growth premium.
Commercial growth looks unsustainable
A lot of Palantir’s commercial growth over the past couple of years has stemmed from one-time events, like a SPAC merger and a joint venture in Japan, along with revenue catch-up from earlier transactions. As these trends fade, I expect normalized growth to drop closer to 15%, rather than the 25%+ growth that the market currently anticipates.
Competition in the enterprise data and AI sectors has increased significantly. Companies like Microsoft, Databricks, and Snowflake are now providing scalable data solutions at competitive pricing, which may challenge Palantir’s ability to secure larger deals.
Moreover, Palantir’s consulting model often depends on creating tailored solutions, which limits its reach. While this works for government contracts and sizable organizations, it doesn’t translate as effectively for smaller businesses with in-house technical resources.
PLTR’s government growth engine begins to slow down
The government sector remains Palantir’s strongest area, but growth has shown signs of slowing. Recent quarters have seen minor increases in contract values, and deal flow has become trickier due to tightening public sector budgets.
The company is still managing to secure renewals and extensions, yet new contracts tend to be valued higher than in previous years. Unless Palantir can demonstrate renewed growth in its government business, justifying the stock’s high valuation remains a challenge.
Individual investor enthusiasm increases volatility
The shareholder base of Palantir is mainly retail-focused, with many individuals dedicated to the company’s long-term AI vision. Nevertheless, there’s a growing sense of strain among these investors. Recent data indicates an 18% increase in discussions surrounding privacy and ethical issues, which points to a potential dampening of enthusiasm.
Frustration is also evident over Palantir’s lack of initiatives to return capital, despite holding around $6 billion in cash. The absence of clear plans for share buybacks or dividends could further undermine its credibility. Coupled with ongoing ethical conversations and speculation regarding potential stock splits, these factors might compress valuation multiples in upcoming quarters as investors rethink the balance between potential and results.
PLTR maintains super high rating
By just about any metric, Palantir’s valuation seems extreme. The stock’s P/E ratio sits at 358x, significantly higher than the sector median of 25x. Valuations like 129x EV/Sales and 128x Price/Sales far exceed industry averages. While Palantir has posted impressive growth figures—30% CAGR over five years for revenue and over 100% for free cash flow—it’s tough to justify such multiples at the current growth rate.
Even taking into consideration Palantir’s AI-related growth potential, the company would need to maintain over 30% growth for several years to validate its current valuation. In such a competitive landscape, that seems a tall order.
Using a combination of eight valuation models, including EV/EBIT multiples and price/sales comparisons, we estimate a fair value of around $90 per share, suggesting about a 54% downside from current prices.
Is PLTR a good stock to buy?
Wall Street analysts appear somewhat less pessimistic than I am, yet most still anticipate a decline from current levels. Reports indicate Palantir holds an average Hold rating among 19 analysts; this includes 4 Buys, 13 Holds, and 2 Sells, with an average price target of $158.41, suggesting about a 20% decline over the next year.
Even if short-term downside risks dominate, the long-term remains intact
Palantir continues to present a compelling long-term narrative, offering significant exposure to AI growth, national security digitization, and enterprise analytics. Nonetheless, its present valuation seems to reflect near-optimal execution and multi-year growth, which may not materialize as quickly as some investors hope. The commercial momentum seems shaky, government growth appears to be tapering off, and the rise of retail speculation has pushed stock values well beyond reasonable limits.
While I believe Palantir may eventually fulfill its long-term AI ambitions, I foresee notable downside risks within the next year. At this moment, my stance on Palantir is somewhat bearish.
