Key Points
The past year hasn’t been a good one for shares of Palantir (NASDAQ: PLTR). This has been a top stock to own for the majority of the AI arms race, but has faltered a bit in recent months.
Although the stock recently rallied from its true 52-week low, it was still lower than where it was this time last year. Overall, it’s down nearly 40% from its all-time high, which may lead investors to assume it’s a perfect buying opportunity.
Let’s take a look to see if this sell-off was warranted or if there is more room to go. The answer may surprise you, as there was a ton of hype baked into the stock in October 2025 when it last hit an all-time high.
Palantir has several years’ worth of growth priced into it despite the sell-off
Palantir is one of the more mature companies in the AI space. Its software was developed years ago for government use and helped sort through data to provide real-time insights to decision-makers. That software eventually found a use in the commercial space, which has grown to become a major part of Palantir’s revenue stream. The biggest development for Palantir has been AIP, which can help integrate AI agents into workflows to automate tasks and speed up the time it takes to get insights to those who need them.
Its software has become widely popular with government and commercial clients alike, with revenue rising 85% year over year in its most recent quarter. That’s phenomenal growth, and Palantir will likely deliver elevated growth rates for some time. But is that enough to justify its sky-high stock price?
During its last quarter, Palantir posted an impressive 53% net income margin, making it one of the most profitable companies in the software space. This means investors should value the stock based on earnings, and with Palantir’s rapid growth, the forward earnings ratio is the best tool they have. At nearly 90 times forward earnings, Palantir is not a cheap stock.
PLTR PE Ratio (Forward) data by YCharts
Most big tech stocks trade in the 20 to 30 times forward earnings valuation range, and for Palantir to reach that level, its stock price must stay flat, and its earnings must triple beyond 2026’s growth. With Wall Street analysts expecting 45% revenue growth in 2027, it could take years for Palantir to grow enough to trade at a reasonable level.
That spells trouble for Palantir’s stock, and it could stay stagnant for years as it grows into its lofty valuation. Or the stock could drop to match growth expectations. Either way, Palantir doesn’t look like a great stock to own right now, and there are far better AI investment options available.
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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
