Let’s dive right in. Palantir, trading under the ticker PLTR, still seems pricey to me, which is why I haven’t added it to my portfolio just yet.
You might wonder, why the hesitation? Well, despite the fact that this AI data and analytics company delivered impressive fourth-quarter results—showing a remarkable 70% increase in revenue year-over-year—the valuation raises some concerns. Looking ahead, their guidance suggests that revenue growth could pick up even more in the first quarter of 2026. Executives have noted that the company is experiencing a substantial shift in software adoption.
But why do I have reservations about investing in stocks like this?
The main issue is valuation. The stock seems to be priced for perfection, leaving little room for any missteps or even a natural slowdown in growth over the next several years.
I want to clarify that saying the stock isn’t attractive doesn’t reflect my opinion on the management or the business itself. It’s a solid company that’s performing well. However, when firms are at the forefront of exciting market trends, the stock prices can become inflated, which appears to be the case with Palantir. Notably, its stock has skyrocketed by over 1,600% in the last three years.
Beyond just rapid growth, Palantir is actually seeing its revenue accelerate. To illustrate, their year-over-year revenue growth for 2025’s four quarters was 39%, 48%, 63%, and then 70%. It’s no surprise that investors are keen on this business.
However, it’s worth noting that Palantir’s profitability has been slipping. For instance, net income surged by more than 250% year-on-year in 2025, reaching about $1.625 billion.
On the flip side, as of now, the price-to-earnings (P/E) ratio exceeds 200, and more robust growth is expected in the years to come.
To understand the stock’s valuation better, one should look at its market capitalization. Currently, Palantir’s market cap stands above $306 billion, while its sales over the past year were roughly $4.5 billion with net income around $1.6 billion. There’s an evident disparity between its market cap and its fundamental financials.
Even when calculating the stock’s price based on analysts’ consensus earnings estimates for the next year, it still appears overvalued. The forward P/E ratio is about 110 times. If growth were to decelerate, such a valuation could become problematic. The outlook for the first quarter suggests economic slowdowns may not hit just yet, but they could come sooner than expected. It’s also worth mentioning that while Palantir’s total contract value (TCV)—essentially the lifetime value of customer contracts—grew by 138% year-over-year in Q4, this was a decline from the 151% growth reported in the third quarter.
Now, the 138% increase in closed TCV in Q4 isn’t a bad sign. Management should be proud of that performance. Yet, if this deceleration trend continues into 2026, revenue growth may falter.
In conclusion, Palantir’s business remains strong in many aspects. Still, every investment comes at a cost, and I believe the current price of Palantir stock might be too high. There’s always a possibility that Palantir could achieve the exceptional growth needed to validate its current valuation, but I’m not convinced it’s the right time to take that risk.
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