How High Can Palantir Stock Go?

Palantir Technologies (NASDAQ:PLTR) has been one of the undisputed victors in the AI boom and has defined the stock market for the past two years.

In the last 12 months alone, PLTR shares are up more than 350% on the back of rapid growth in the commercial business and tremendous investor enthusiasm for AI applications in the corporate world.

The question now is whether Palantir has peaked or if the stock can continue to move higher going into 2025.

Commercial Revenues Soaring at Palantir

There’s little doubt that Palantir is living up to the hype as far as growth rates are concerned. Since the end of 2022 alone, the company’s trailing 12-month revenue totals have risen from $1.91 billion to $2.65 billion.

While impressive, this pace of top line growth is dwarfed by its earnings growth. Palantir only achieved profitability in Q4 of 2022. Since then, the trailing 12-month earning per hare has soared to $0.20. In each of the last four quarters, trailing 12-month earnings have risen by triple-digit percentage amounts.

These strong growth trends persisted in Q3, the most recently reported quarter. Total revenues rose by 30%, bolstered by a 44% gain in overall US revenues and a 54% spike in US commercial revenues. The latter number was particularly positive for investors because Palantir has been trying to diversify its customer base by offering its products to US businesses as well as its core customer, government agencies.

That said, the company’s base of stable US government contracts also expanded by 40%, showing a strong two-pronged approach to revenue growth.

Q3 saw EPS double on a year-over-year basis to $0.06 per share. Customer count also climbed by 39%, while Palantir signed 104 new agreements with values of $1 million or more. By practically every standard, the company’s results in the last reported quarter can be graded as A+.

Even better for Palantir as a business is the fact that it could still have a lot of growth left in the pipeline. The  fast-growing commercial revenue metric is essential because it demonstrates that Palantir is successfully moving into the US private sector.

Over time, this growth and rising international sales offer Palantir plenty of runway to raise revenues and, more importantly, earnings. Even for Q4, management expects revenues to increase steadily again to the range of $767-771 million.

Palantir also continues to stake its claim as a leading force in the military AI market. Recently, for instance, CEO Alex Karp’s firm signed an agreement with Shield AI to develop AI-powered aircraft for defense applications. With the incoming Trump administration likely to make large investments in military technology, Palantir and other software companies that cater to the American military are likely going to be in for a good few years.

Finally, no discussion of Palantir would be complete without acknowledging the expected growth of the AI market itself. Through 2030, AI is expected to grow at a compounded rate of over 35% annually. 

The Problem With Palantir’s Valuation

Although Palantir has delivered some truly exceptional performance in recent quarters, the stock still looks extremely expensive.

PLTR shares currently trade at 68.4x sales, 38.1x book value and a staggering 376.0x earnings.

While the price-to-earnings-growth ratio of 1.6 puts some of this into the context of very high expected growth, it’s still difficult to justify the price investors are paying for Palantir at the moment.

What Do Analysts Foresee for Palantir?

Unsurprisingly, Palantir’s seeming overvaluation is also reflected in analyst price forecasts. Right now, the average price target for PLTR is $39.57, more than 40% below the current price of $75.19. In fact, even the highest forecast is just $75, implying no upside in even the most bullish case.

Of the 18 analysts covering Palantir, only 3 currently rate it as a buy. With that said, analysts do expect Palantir’s earnings to keep growing at a very healthy pace for several more years to come.

Over the next 3-5 years, Palantir’s EPS is expected to rise at a compounded annual rate of around 27.5%.

So, Will Palantir Keep Climbing?

On the surface, Palantir seems like it should be destined to accelerate profits. After all, the company has added the all-important commercial growth lever to the existing government business.

Even Palantir’s financial standing looks promising for investors thanks to the company’s $4.6 billion worth of cash and equivalents on the balance sheet, which carries no long-term debt.

The problem, though, comes in the form of Palantir’s valuation. With an absolute best-case growth scenario seemingly baked into the price of the stock right now, investors risk seeing share prices fall on practically any piece of bad news.

Another hiccup that arises from Palantir’s likely overvaluation stems from rapid share dilution. In Q3, for instance, the number of outstanding PLTR shares rose by 5.8% compared to the previous year. This means that shares of the stock are gradually being diluted, even as investors pay higher and higher prices for them. This makes PLTR an even riskier buy if it persists because investors have no way of telling how high the number of outstanding shares will eventually go.

At the end of the day, Palantir is an extremely good company whose stock simply appears to be trading at too high a price. While there may not be much near-term upside in PLTR, it could still be a decent hold for investors who locked their shares in at lower prices. In the long run, Palantir’s growth could push the shares gradually higher. For now, though, new shareholders seem to run a substantial risk of overpaying for Palantir.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.