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Palantir (PLTR) was one of the top performers in 2024, with its stock soaring by an impressive 340.5% over the year. This notable growth in PLTR stock reflects the growing demand for data analytics and software company’s artificial intelligence (AI) solutions. Further, Palantir’s inclusion in the S&P 500 Index ($SPX) boosted investor sentiment and Palantir’s share price.
Palantir’s AI platform (AIP) has witnessed rapidly increasing demand. This has resulted in higher customer count and solid financials. These factors provide a solid base for future growth.
However, as enticing as Palantir’s growth story may be, its valuation has become a point of contention. The stock’s significant rally has likely priced in much of its anticipated growth potential, raising concerns about whether the current levels are sustainable. Reflecting these concerns, Palantir’s stock has retraced about 20% from its 52-week high of $84.80. Additionally, Wall Street analysts remain cautious, with the average price target indicating the possibility of further downside. Let’s take a closer look.
Palantir Could Deliver Strong Growth
Palantir is growing rapidly and delivering solid financials. During the last reported quarter (Q3), Palantir’s revenue climbed 30% year-over-year, marking its sixth consecutive quarter of accelerating growth. This reflects the growing demand for its AI solutions. Further, leverage from higher sales and operating efficiency drove Palantir’s adjusted operating margin to 38%, a notable improvement from 29% in the prior year.
In Q3, Palantir secured 104 deals, each valued at over $1 million. These deals led to a 33% increase in its total contract value (TCV), which reached $1.1 billion. The company’s solid TCV shows the company’s ability to attract large contracts, drive market share, and deliver substantial revenues in the coming years.
Palantir’s commercial segment is showing significant growth, with revenue growing 27% year-over-year in Q3. The commercial TCV booked during the quarter surged to $612 million, reflecting 52% year-over-year growth and a staggering 62% sequential growth. The U.S. commercial market, in particular, remains a bright spot. Revenue from this segment soared 54% year-over-year and 13% sequentially, reaching $179 million. The growth was fueled by the company’s AIP, which has been instrumental in expanding its customer base.
Palantir’s total remaining deal value in its U.S. commercial business grew 73% year-over-year, providing a strong foundation for future growth. Its U.S. commercial customer count reached 321, representing a 77% year-over-year increase. This upward trend in customer acquisition is expected to continue into 2025, bolstering the company’s overall growth trajectory.
The government segment also delivered impressive results, with revenue climbing 33% year-over-year and 10% sequentially in Q3. U.S. government revenue increased 40% year-over-year and 15% sequentially. This growth was driven by Palantir’s ability to secure new deals, expand existing programs, and capitalize on the heightened demand for AI-driven government solutions.
Palantir’s business momentum is expected to remain strong as the company solidifies its position in the software and data analytics market through its AI offerings. The strong demand for its services, driven by AIP, will likely support new customer acquisitions and drive revenues from existing customers, positioning it well to deliver solid growth.
The Valuation Concern
While Palantir’s growth narrative is compelling, its valuation is a big concern. The stock trades at extremely high multiples, with a price-sales ratio of 62.02x and a forward price-earnings ratio of 228x, well above industry averages. These lofty valuations raise questions about whether Palantir’s future potential justifies its current price.
Adding to the challenges, Palantir’s heavy reliance on government contracts introduces revenue uncertainty. Contracts with government entities can be lumpy and require renewals, posing the risk of revenue disruptions.
The Bottom Line on PLTR Stock
While Palantir’s growth story is compelling, its valuation raises concerns. Wall Street analysts have a “Hold” consensus rating on Palantir stock, with an average price target of $44.81, suggesting potential downside of 34.3% from recent levels.
Analysts’ price target highlights concerns about the company’s current valuation, which could further pressure its stock lower, particularly if Palantir’s growth slows.
