By every traditional yardstick, including a price‑to‑sales well above 100, forward P/E north of 230, and a PEG around 5‑6, Palantir is overvalued.
It would have to compound revenue at ~40 % per year for a decade and preserve today’s 40 %‑plus free‑cash‑flow margin just to grow into its current $320 billion market value. That makes the stock objectively expensive and, in strict fundamental terms, overvalued.
Yet valuation is only half the story. If Palantir’s Artificial Intelligence Platform really becomes the “operating system for AI” that management envisions, today’s sticker shock may one day look cheap. Below is a deeper dive into both sides of the debate.
How Rich a Valuation Is “Too Rich”?
| Metric (as of 14 Jun 2025) | Palantir | Snowflake | Datadog | S&P 500 Avg.* |
|---|---|---|---|---|
| Price‑to‑Sales (TTM) | ≈ 109× | 19× | 15× | 2.8× |
| Trailing P/E | ≈ 600–780× (various sources) | ─ (negative GAAP) | 160–250× | 25× |
| Forward P/E | ≈ 236× | 56× | 82× | 20× |
| PEG (’25 est.) | ~5.5–6.0 | ~1.8 | ~2.4 | ⬇1 is “cheap” |
Palantir trades at 5–10 × the valuation multiples of elite software peers that are themselves considered pricy.
Unless its growth far outstrips the group, the stock is mathematically vulnerable to multiple compression.
“But growth is exploding, doesn’t that justify the premium?”
When it comes to top line momentum, Palantir in Q1 2025 crushed sales growth by posting a 39 % gain year over year to $884 million, and management just raised full‑year guidance to 36 % growth ($3.9 billion).
It’s also turning into quite the cash flow machine with adjusted free cash flow hitting $370 million last quarter (42 % margin) and is targeted at $1.6 – 1.8 billion for 2025. That’s a monster 40‑plus % FCF margin, higher than both Microsoft and Adobe.
Defense revenues are proving remarkably sticky too. For example, in May the Army lifted the ceiling on Palantir’s Maven Smart System contract by $795 million, pushing the program’s lifetime value to $1.28 billion and extending work through 2029.
Better yet, there’s a commercial catch-up going on with U.S. commercial revenue now growing faster than government (55 % vs. 39 %) and representing 32 % of sales, up from 18 % two years ago.
Growth is real, just not 600×‑earnings, 100×‑sales real. Even assuming Palantir 3x’es sales to $12 billion by 2030 at a 25 % CAGR, and sustains an Apple‑like 30 % net margin, EPS would be ~$1.40. At today’s $137 share price that’s still a 98 × 2030 P/E.
What Are The Bullish Wild Cards?
| Catalyst | Why it matters | Likelihood | Timing |
|---|---|---|---|
| AIP becomes the default AI workbench across sectors | Would massively expand TAM and pricing power | Medium: early traction but crowded field | 12‑36 mo |
| Large‑scale DoD AI rollout (e.g., Joint All‑Domain Command & Control) | Multi‑year, multi‑billion revenue streams with high barriers to entry | Medium‑high (Palantir already embedded) | Starting FY‑26 budgets |
| International defense escalation (NATO, Indo‑Pacific alliances) | Warfare digitalization could mirror U.S. adoption curve | Medium | 2025‑2028 |
| M&A or strategic partnership with a hyperscaler | Could accelerate commercial penetration and lower compute costs | Low‑medium | Anytime |
If two or more of these fire, growth could remain >30 % for longer than Wall Street models, partially validating today’s price.
The Bear Case Made Simple
The bears will point to valuation gravity kicking in shortly and history shows software names trading above 25× sales eventually revert, often violently, once revenue growth falls into the 20 % range. Citi cites the “law of large numbers” in its Neutral rating and $115 target (−16 % downside).
Dilution is still creeping in and share count outstanding rose another 6 % YoY to 2.553 billion last quarter. This is really critical because higher stock‑based comp erodes per‑share metrics and forces even greater revenue growth to maintain P/E.
Concentration mix has always been a worry and roughly 46 % of revenue still comes from U.S. government agencies whose budgets can swing with politics. The Trump defense‑budget cut chatter earlier this year clipped the stock 32 %.
Then there’s the concern about what advantage Palantri really has? From Snowflake’s Polaris to Microsoft’s Fabric, heavyweights are racing to offer turnkey AI data stacks. Palantir’s first‑mover mojo may fade faster than bulls expect.
What Do Analysts Think?
The Wall Street consensus among 17 analysts Is a $104 price target and features 3 Buys, 10 Holds, and 4 Sells.
The highest bull is Sarge Guilfoyle at TheStreet, with a $153 target. His thesis is the AIP monetization curve still underestimated.
An iconic bear quote from Morningstar’s valuation team flags a 2025 PEG of 5.5, calling the stock “priced for a flawless execution that almost never happens.”
Is Palantir Stock Overvalued?
If Palantir executes perfectly it can still be a great company; that doesn’t guarantee today’s buyers a great stock.
Among traders, momentum remains fierce, but recognize you’re surfing a wave built on extremely buoyant multiples. Setting tight stops is more than prudent.
For long‑term investors without a position, a starter allotment (< 1 % of portfolio) can make sense if you’re convinced Palantir will own the AI operating stack but being disciplined and only adding on 30 %‑plus pullbacks probably makes sense.
Existing shareholders sitting on huge gains can consider trimming enough shares to recoup initial capital but let the “house money” ride to capture any upside from AIP or defense megadeals. That balances regret risk against valuation risk.
So what’s the takeaway, is Palantir stock overvalued? It it, but not un‑investable, provided you size it like a venture bet and remember that even the most magical narratives must eventually reconcile with cold, hard math.
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.