Is the Bubble About to Burst for Palantir Technologies Stock?

It seems nothing can go wrong for Palantir Technologies (NASDAQ: PLTR) these days. Shares of the artificial intelligence (AI) and data analytics software company skyrocketed 167% in 2023 and 340% in 2024. So far this year, the stock is up more than 50% -- a remarkable gain in only six weeks.

But all good things must end sooner or later. Is the bubble about to burst for Palantir?

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Bubble? What bubble?

Before I go any further, I'll readily admit that some would challenge the view that Palantir stock is in a bubble. For example, Wedbush analyst Dan Ives wrote to investors in January that Palantir's "game-changing AIP technology is quickly becoming a key foundational platform for enterprises heading down the AI use case path across verticals," according to media reports.

Ives believes that Palantir will profit from increased U.S. government spending on AI. He also thinks the company has tremendous opportunities to expand its U.S. commercial business.

Palantir's 2024 fourth-quarter update reported on Feb. 3, 2025, certainly provided reasons for optimism. Revenue jumped 36% year over year to $828 million with U.S. revenue soaring 52%. Palantir closed 129 deals valued at $1 million or more in Q4. Thirty-two of them were worth at least $10 million.

The company projects revenue growth of 31% in fiscal year 2025. Its press release unabashedly noted that this outlook was "eviscerating consensus estimates."

Palantir Technologies CEO Alex Karp said in the company's Q4 earnings call, "You know, the part of the reason we've done so well is the experts look to the past as an indication of the future when we're looking to the future as an indication of the present." He added, "We are at the beginning of our trajectory. We are at the way beginning of a revolution." If Karp is right, any talk of a bubble could be completely off base.

If it quacks like a duck...

However, you've probably heard the saying, "If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck." This adage can be readily applied to stock bubbles. The definition of a stock bubble is a period when the share price rises rapidly without underlying business fundamentals supporting the rise. There's a good case to be made that the bubble duck is quacking for Palantir.

Over the last 12 months, Palantir's share price has skyrocketed nearly 380%. As previously mentioned, its quarterly revenue has increased by 36%. The company's full-year fiscal 2025 guidance projects slower growth of 31%. There appears to be a disconnect between stock growth and business growth.

Palantir's shares trade at 196 times forward earnings and 94.8 times trailing 12-month sales. Those lofty valuations might be defensible if the company's revenue and earnings were growing by truly jaw-dropping rates and were accelerating. But they're not.

Perhaps Ives' bullish take on Palantir is right. It's important to note, though, that he's an outlier on Wall Street. Of the 23 analysts surveyed by LSEG in February, only three recommended the stock as a "buy" or a "strong buy." The average 12-month price target for Palantir is roughly 29% below the current share price.

In the eye of the beholders

Let's assume, therefore, that Palantir stock is indeed in a bubble. Returning to our original question, is this bubble about to burst? The best answer is... maybe, maybe not.

Bubbles can last a lot longer than you might think. For example, remember the dot-com bubble of the 1990s? Then-Federal Reserve chairman Alan Greenspan made his famous remark about "irrational exuberance" in December 1996. The dot-com bubble didn't burst until 2000.

The bottom line is that the attractiveness of stock prices, like beauty, is in the eye of the beholders. As long as enough investors think that Palantir's share price could continue rising, it will. For a bubble to burst, more investors must think there is a bubble than not. That might not happen with Palantir for a while.

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Keith Speights 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.