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Palantir (PLTR) is one of the top-performing S&P 500 Index ($SPX) stocks, rising by an impressive 513% over the past year. This notable growth in PLTR stock reflects the strong demand for the data analytics and software company’s solutions.
Fueling Palantir’s growth is its Artificial Intelligence (AI) Platform, or AIP, which is witnessing increasing demand. This has resulted in a higher customer count and driven its financials. For instance, Palantir delivered stronger-than-expected fourth-quarter financial results on Monday, Feb. 3. PLTR stock rallied over 26% in early trading on Tuesday, Feb. 4, after the company forecast upbeat revenue for Q1 driven by strong demand for its AIP.
While the ongoing momentum in its business is likely to sustain in 2025, concerns loom over Palantir’s lofty valuation. Notably, the rally in PLTR stock indicates that much of its anticipated growth potential is already reflected in its share price, raising concerns about whether the stock’s current levels are sustainable. Against this background, let’s take a closer look to determine whether investors should step away from PLTR stock for now.
Palantir’s Growth Momentum to Sustain
Palantir appears well-positioned to maintain its growth momentum in the coming quarters. Its business expansion has been remarkable, fueled by the increasing adoption of AI solutions among government and commercial clients in the U.S. market. In its latest quarter, Palantir achieved record revenue of $828 million, marking a 36% year-over-year increase. This growth is part of a consistent trend, as the company’s year-over-year revenue growth rate has accelerated over the past seven quarters, rising from 13% in Q2 2023 to 36% in Q4 2024.
The company reported a total contract value (TCV) of $1.8 billion, reflecting 56% year-over-year growth. Palantir secured 32 deals worth $10 million or more. Its customer base grew 43% year-over-year and 13% sequentially to 711 clients. Additionally, revenue from its top 20 customers increased 18% year-over-year to an impressive $65 million per customer. These factors provide a solid foundation for future growth.
Palantir’s U.S. commercial business continues to be a key contributor to its growth. In Q4, the U.S. commercial business’s top line jumped 64% year-over-year and 20% sequentially. The demand for AI production use cases has surged, driving Palantir's commercial customer count up by 73% year-over-year and 19% sequentially. Palantir booked its highest-ever U.S. commercial TCV of $803 million, representing 134% year-over-year growth.
Looking ahead, the U.S. commercial revenue will likely deliver solid growth. Management projects revenue over $1.079 billion in 2025, representing a growth rate of at least 54%.
Government contracts have also been a crucial growth driver. Palantir’s U.S. government revenue rose 45% year-over-year to $343 million in Q4, fueled by the strong execution of existing programs and new awards. The continued adoption of AI solutions within government operations highlights Palantir’s expanding market for offerings.
Overall, Palantir forecasts 2025 revenue in the range of $3.741 billion to $3.757 billion, representing a 31% year-over-year growth rate at the midpoint. Strong revenue growth is expected to support margin expansion and boost adjusted free cash flow.
Valuation Challenges
Despite its impressive growth narrative, Palantir’s valuation is a growing concern. The stock currently trades at exceptionally high multiples, with a price-sales ratio of 76.12x and a forward price-to-earnings ratio of 271.95x, far exceeding industry averages. These lofty valuations raise questions about whether the company’s future growth potential justifies its current stock price.
Another risk factor is Palantir’s reliance on government contracts, which are inherently unpredictable and prone to fluctuations. Such dependencies introduce a level of revenue uncertainty that could pose challenges for the company moving forward.
Investment Outlook for Palantir Stock
While Palantir’s growth prospects remain compelling, its elevated valuation presents a significant risk for investors. Given the company’s high valuation, Wall Street analysts currently maintain a “Hold” consensus rating on the stock, with an average price target of $47.29, indicating significant downside potential from recent levels.
In conclusion, Palantir’s AI solutions and impressive financial performance are positives. However, analysts’ cautious stance highlights concerns about whether Palantir’s current valuation is sustainable, particularly if its growth trajectory begins to decelerate. Investors with a long-term outlook may consider holding onto their Palantir shares to benefit from the company’s promising future. However, a gradual approach to profit-taking could be wise for investors seeking to lock in gains. Incremental sales allow you to secure profits while keeping some exposure to future growth.
