The information mining and analytics agency remains to be rising like a weed.
It has been a tricky yr for a lot of tech shares. Because the Trump Administration’s unpredictable tariffs, the messy commerce battle with China, and elevated charges drive traders towards extra conservative investments, many high-growth tech performs misplaced their luster.
But one inventory that bucked that sell-off was Palantir (PLTR 1.64%). On the time of this writing, Palantir has rallied greater than 40% year-to-date, whereas the Nasdaq has declined over 10%. Let’s have a look at why Palantir stayed sizzling on this chilly market — and if it is nonetheless price chasing at these ranges.
Picture supply: Getty Pictures.
What does Palantir do?
Palantir, which was named after the all-seeing orbs from The Lord of the Rings, is a knowledge mining and analytics firm that gathers knowledge from myriad sources. It makes use of that knowledge to identify traits and assist its purchasers make extra knowledgeable selections.
Palantir operates two fundamental platforms: Gotham for its authorities prospects and Foundry for its industrial prospects. Most of America’s authorities companies and army branches already use Gotham to gather knowledge and plan their operations. Large firms like Morgan Stanley and Airbus use Foundry. It additionally permits its purchasers to create their very own synthetic intelligence (AI)-powered apps, actions, and brokers throughout each platforms.
Palantir was initially funded by the CIA’s enterprise capital arm, and authorities contracts drove lots of its preliminary development. Its know-how was reportedly used to search out Osama Bin Laden, find undocumented migrants for ICE, and help Israel’s protection in opposition to Hamas. It leveraged that battle-hardened status to succeed in extra industrial prospects.
Why did Palantir’s inventory skyrocket?
Palantir went public through a direct itemizing as a substitute of an IPO on Sept. 30, 2020. On the time, it predicted it could develop its annual income by a minimum of 30% yearly by way of 2025.
The corporate truly exceeded these estimates with 47% development in 2020 and 41% development in 2021. Nevertheless, its income solely rose by 24% in 2022 and grew by 17% in 2023. That slowdown was brought on by the uneven timing of its authorities contracts and macro headwinds for its industrial prospects.
Nevertheless, as Palantir’s income development slowed down, it streamlined its spending and lowered its stock-based compensation bills. Because of this, it turned worthwhile on a typically accepted accounting ideas (GAAP) foundation in 2023.
In 2024, Palantir’s income elevated 29% as its GAAP earnings per share greater than doubled. That acceleration was pushed by the expansion of its U.S. industrial enterprise, which confronted milder headwinds as rates of interest declined, and geopolitical conflicts, which sparked recent demand for its government-oriented companies. Extra of its prospects are additionally utilizing its AI instruments to develop their very own AI purposes. Its accelerating income development and hovering income drove away the bears, and its inventory skyrocketed.
Palantir’s rising market cap and steady profitability led to its inclusion within the S&P 500 final September. It was additionally added to the Nasdaq-100 final December. Its addition to these two main indexes might appeal to extra consideration from long-term traders.
For 2025, Palantir expects its income to rise 31% because it stays worthwhile on a GAAP foundation. From 2024 to 2027, analysts anticipate its income and GAAP EPS to develop at a compound annual development price (CAGR) of 31% and 51%, respectively. That rosy outlook makes it one of many market’s fastest-growing tech shares.
However three points might restrict Palantir’s beneficial properties
Palantir’s future appears to be like shiny, however traders should not ignore its three main weaknesses. First, its valuations look overheated. With a market cap of $253 billion, it already trades at 67 occasions this yr’s gross sales. At its present worth of $109 per share, it trades at 354 occasions this yr’s GAAP EPS. These valuations make Palantir look extra like a meme inventory than a sexy development inventory.
Second, most of its latest acceleration was pushed by its U.S. industrial enterprise, which accounted for twenty-four% of its high line in 2024. The Trump Administration’s tariffs might pressure a few of these massive prospects to rein of their spending and make it more durable for Palantir to safe new contracts. Lastly, Palantir’s authorities enterprise may very well be affected by the Trump Administration’s plans to rein in authorities spending. Palantir has gained some new authorities contracts this yr, however Protection Secretary Pete Hegseth beforehand requested the Pentagon to trim the U.S. protection price range by 8% yearly over the following 5 years.
These points might trigger Palantir to overlook its personal formidable targets once more, because it did in 2022 and 2023, and its bubbly valuations might pop. So, whereas Palantir’s enterprise remains to be rising, I do not suppose traders ought to chase its inventory at these ranges. It might simply be reduce in half and nonetheless be thought of costly — so traders ought to watch for a pullback earlier than pulling the set off.
Leo Solar has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Palantir Applied sciences. The Motley Idiot has a disclosure coverage.
