Is Palantir Stock a Buy in 2025 After Its 340% Gain in 2024? Wall Street Analysts Have a Surprising Answer

Shareholders of Palantir Technologies (NASDAQ: PLTR) just had a fantastic year. The stock gained 340% in 2024, making it the best-performing component of the S&P 500 (SNPINDEX: ^GSPC). That may seem like a bullish signal, but the Wall Street analysts covering the data analytics company are surprisingly (and overwhelmingly) bearish on it.

In fact, only six stocks in the S&P 500 have a higher percentage of sell ratings than Palantir, and the median price target of $39 per share implies a 45% downside from its current price of $71. Note that median refers to the middle value, not the average value. So half of the analysts following Palantir expect the stock to fall by more than 45% in the next 12 months.

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What makes that especially surprising is that Palantir has already fallen by 16% from its record high in recent weeks. Here's what investors should know.

Palantir is a good business with compelling growth prospects in artificial intelligence

Palantir is a data analytics software company. Its core products, Foundry and Gotham, help businesses integrate complex information, build machine learning models, and query data. Its artificial intelligence platform, AIP, adds support for large language models to Foundry and Gotham, letting clients apply generative AI to their operations.

The company has received glowing praise from certain industry analysts. For instance, Forrester Research last year recognized it as a leader in AI/machine learning platforms, awarding AIP a higher score for current capabilities than any other product on the market, including Alphabet's Vertex AI. "Palantir is quietly becoming one of the largest players in this market," its analysts wrote.

Similarly, Dresner Advisory Services listed Palantir as one of two top-ranked vendors in its 2024 market study on artificial intelligence, data science, and machine learning software. In that context, the business has compelling growth prospects. The International Data Corporation estimates that AI platform sales will increase at an annualized rate of 41% through 2028.

Palantir is executing on that opportunity. The company beat Wall Street's high expectations on the top and bottom lines in the third quarter. Its customer count increased by 39% to 629, and its average existing customer spent 18% more than in the prior-year period. Revenue increased by 30% year over year to $726 million, its fifth consecutive sequential acceleration, and non-GAAP earnings increased 43% to $0.10 per diluted share.

"The release of our newest platform, AIP, has transformed our business," wrote CEO Alex Karp in his latest shareholder letter. "The growth of our business is accelerating, and our financial performance is exceeding expectations as we meet an unwavering demand for the most advanced artificial intelligence technologies from our U.S. government and commercial customers."

Image source: Getty Images.

Palantir is a very expensive stock despite its compelling growth prospects

While Palantir has compelling growth prospects from a business perspective, that does not necessarily make the stock a good investment. Indeed, Wall Street thinks Palantir's adjusted earnings will increase by just 31% in the next four quarters. Compared to that consensus estimate, its valuation of 200 times adjusted earnings looks very expensive.

For that reason, while Palantir is undoubtedly well positioned to capitalize on growing demand for AI software, investors should avoid the stock until it's trading at a much cheaper valuation. I see very little (if any) upside in the near term from the current share price, and I expect better entry points to present themselves in the future.

Having said that, Dan Ives at Wedbush Securities sees significant upside for Palantir over the long run. In fact, he recently told Yahoo Finance that Palantir could be the next Oracle or Salesforce. For context, those software companies currently have market values of $450 billion and $310 billion, respectively, while Palantir is worth $160 billion. In other words, Ives thinks Palantir may double or even triple in value over time.

Even so, investors should be cautious with the stock now. Its current valuation is unsustainable. Unless Palantir exceeds Wall Street's earnings estimates by wide margins, the stock could experience a material correction in the coming months.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Oracle, Palantir Technologies, and Salesforce. The Motley Fool has a disclosure policy.