Up 40% in 2025: Is It Too Late to Buy Palantir Stock?

It's been a tough year for many tech stocks. As the Trump Administration's unpredictable tariffs, the messy trade war with China, and elevated rates drive investors toward more conservative investments, many high-growth tech plays lost their luster.

Yet one stock that bucked that sell-off was Palantir (NASDAQ: PLTR). At the time of this writing, Palantir has rallied more than 40% year-to-date, while the Nasdaq has declined over 10%. Let's see why Palantir stayed hot in this chilly market -- and if it's still worth chasing at these levels.

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What does Palantir do?

Palantir, which was named after the all-seeing orbs from The Lord of the Rings, is a data mining and analytics company that gathers data from myriad sources. It uses that data to spot trends and help its clients make more informed decisions.

Palantir operates two main platforms: Gotham for its government customers and Foundry for its commercial customers. Most of America's government agencies and military branches already use Gotham to collect data and plan their operations. Big companies like Morgan Stanley and Airbus use Foundry. It also allows its clients to create their own artificial intelligence (AI)-powered apps, actions, and agents across both platforms.

Palantir was originally funded by the CIA's venture capital arm, and government contracts drove a lot of its initial growth. Its technology was reportedly used to hunt down Osama Bin Laden, locate undocumented migrants for ICE, and support Israel's defense against Hamas. It leveraged that battle-hardened reputation to reach more commercial customers.

Why did Palantir's stock skyrocket?

Palantir went public via a direct listing instead of an IPO on Sept. 30, 2020. At the time, it predicted it would grow its annual revenue by at least 30% annually through 2025.

The company actually exceeded those estimates with 47% growth in 2020 and 41% growth in 2021. However, its revenue only rose by 24% in 2022 and grew by 17% in 2023. That slowdown was caused by the uneven timing of its government contracts and macro headwinds for its commercial customers.

However, as Palantir's revenue growth slowed down, it streamlined its spending and reduced its stock-based compensation expenses. As a result, it turned profitable on a generally accepted accounting principles (GAAP) basis in 2023.

In 2024, Palantir's revenue increased 29% as its GAAP earnings per share more than doubled. That acceleration was driven by the growth of its U.S. commercial business, which faced milder headwinds as interest rates declined, and geopolitical conflicts, which sparked fresh demand for its government-oriented services. More of its customers are also using its AI tools to develop their own AI applications. Its accelerating revenue growth and soaring profits drove away the bears, and its stock skyrocketed.

Palantir's growing market cap and stable profitability led to its inclusion in the S&P 500 last September. It was also added to the Nasdaq-100 last December. Its addition to those two major indexes could attract more attention from long-term investors.

For 2025, Palantir expects its revenue to rise 31% as it stays profitable on a GAAP basis. From 2024 to 2027, analysts expect its revenue and GAAP EPS to grow at a compound annual growth rate (CAGR) of 31% and 51%, respectively. That rosy outlook makes it one of the market's fastest-growing tech stocks.

But three issues could limit Palantir's gains

Palantir's future looks bright, but investors shouldn't ignore its three major weaknesses. First, its valuations look overheated. With a market cap of $253 billion, it already trades at 67 times this year's sales. At its current price of $109 per share, it trades at 354 times this year's GAAP EPS. Those valuations make Palantir look more like a meme stock than an attractive growth stock.

Second, most of its recent acceleration was driven by its U.S. commercial business, which accounted for 24% of its top line in 2024. The Trump Administration's tariffs could force some of those big customers to rein in their spending and make it tougher for Palantir to secure new contracts. Lastly, Palantir's government business could be affected by the Trump Administration's plans to rein in government spending. Palantir has gained some new government contracts this year, but Defense Secretary Pete Hegseth previously asked the Pentagon to trim the U.S. defense budget by 8% annually over the next five years.

Those issues could cause Palantir to miss its own ambitious targets again, as it did in 2022 and 2023, and its bubbly valuations could pop. So, while Palantir's business is still growing, I don't think investors should chase its stock at these levels. It could easily be cut in half and still be considered expensive -- so investors should wait for a pullback before pulling the trigger.

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Leo Sun 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.