Palantir (NASDAQ:PLTR) has shot upward over the last year and even defied the general gravity of the market in the early months of 2025. PLTR shares are up more than 400% in the last 12 months and have even risen 45% during the selloff of the last three months.
Is Palantir a millionaire maker that can keep bucking the trends of the market, or is the stock trading at too high a price after delivering such high returns over the past year?
Incredible Results But Risks Ahead
To say that Palantir has performed well in the last few years would be a gross understatement. Between 2020 and 2024, the company’s full-year revenues exploded from $1.1 billion to $2.9 billion.
Over the same period, it achieved profitability and for 2024 posted a full-year net income of $462 million. Looking forward, analysts expect to see Palantir’s earnings continue to rise at a breakneck rate of almost 30% annually for the next five years.
Palantir has also successfully evolved from its roots as a government contractor supplying data analytics tools to military and intelligence agencies to a serious force in the private commercial world. In Q4, for instance, the company’s US commercial revenue grew 64% year-over-year and 20% from just the previous quarter to a total of $214 million. This surge in private sector revenue is crucial for Palantir, as the commercial world opens up a much larger pool of potential customers for Palantir’s AI tools.
PLTR has also become a strong cash flow generator, delivering adjusted free cash flow of $517 million in Q4 with an FCF margin of 63%. The net margin for the quarter was lower but still came in at 10%. As it scales up, it’s very likely that it will become progressively more profitable and deliver even more attractive cash flows for its investors.
Even with the rapid push into the commercial world, Palantir still derived more than a third of its total revenue from the US government as of Q4. Ordinarily, a significant mix of stable government contracts would be a positive for Palantir, especially going into a potential recession. However, the Trump administration’s spending cuts and reorganization of government agencies could delay or even slow down Palantir’s government revenue growth.
There will likely be some more clarity on this issue when Q1’s results are released later this month, but for now the risk of government disruption remains an unknown for PLTR shareholders.
Investors may also want to consider that the AI boom of the last couple of years has taken place almost exclusively under more or less good economic conditions. While many analysts believe that a recession would actually speed up AI adoption as companies look for ways to cut costs and increase efficiency, the AI boom is too young to have ever been tested by a recession before.
Even though there’s a decent case for a boon in AI spending, the opposite could also easily be the case as companies pull back from investments in new technologies to focus on their core businesses. Such a pullback, if it materializes, could slow down Palantir’s commercial revenue growth and put pressure on PLTR share prices.
How Does Palantir’s Valuation Look?
Despite its extremely positive recent performance, one of the more concerning aspects of PLTR stock at the moment is its astronomical valuation. Palantir trades at over 620 times its trailing 12-month earnings, 101.3 times sales and 55.5 times book value. Even if it sustains an extraordinary growth rate over the next several years, it seems very unlikely that Palantir can justify its current stock price.
This seemingly untenable valuation has invited deep skepticism from both analysts and some of Wall Street’s leading investors. The average price target for PLTR at the moment is $87.05, implying a drop of 26.5% from the last closing price of $118.44. During last year’s price run, famous investor Stanley Druckenmiller sold almost all of his Palantir shares, a move that was mirrored by Ken Griffin. With retail investors piling in at ever-higher prices while Wall Street’s smartest money sells, PLTR’s valuation has begun to look less and less realistic.
So, Is Palantir a Millionaire Maker to Buy Now?
From its share price, there’s no disputing that Palantir is an exceptional business that has delivered massive value for its long-term shareholders. There also doesn’t seem to be any reason to believe that Palantir will drop the ball on growth in the long run, as the company has carved out an attractive leadership position in the AI world.
Even with the possible risk of a slowdown this year, Palantir appears to be on a growth trajectory that will be supported by much larger trends and the company’s own impressive execution.
The problem, however, is that PLTR trades at a valuation that could outweigh its many positive characteristics as a business. Even with surging commercial revenues, a huge market opportunity and rapid improvements in both earnings and free cash flow, PLTR’s price multiples to its earnings and sales seem unsustainable. This is especially true if anything gets in the way of the company’s projected growth, as under anything less than a best-case scenario PLTR looks like it could be primed for a correction.
None of this inherently means that Palantir is a bad stock to hold. Investors who have owned PLTR for some time as its prices shot up could still be well-served by holding their shares as the company continues to grow.
At today’s prices, however, PLTR looks too expensive to buy, even with the business being an incredibly high-quality one. Though investors may want to watch Palantir for future buying opportunities at more attractive prices, the market seems to have bid the price of PLTR shares up to the point where even the company’s impressive growth doesn’t justify the multiples investors have to pay for it.
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.