Palantir Technologies ( PLTR ) stock surged following Donald Trump’s re-election to the White House. Despite CEO Alex Karp’s opposition to Trump, the AI software company appears to have gained support due to the close relationship between Peter Thiel and recent vice president JD Vance. However, I’m on the stock only because the speculation is too tough to sustain at the moment. While the company may face several tailwinds with Trump in office, we don’t know how big these tailwinds will be. Thus, Palantir stock can now be a rather speculative investment.
Despite my bold stance, it’s important to acknowledge the potential positives for Palantir stock following Trump’s election and the continued development of artificial intelligence (AI). Palantir, which specializes in data integration and analytics platforms, has seen its market capitalization rise to more than $50 billion since Trump’s victory, reflecting investors’ optimism about increased federal spending on national security, immigration and space initiatives.
Peter Thiel’s strong ties to the new administration, including support for Trump and J.D. Vance, will lead to favorable treatment in government contracts. In fact, Thiel mentored Vance, helped him get a job, and provided substantial financial support for his political career. In addition to this highly personal relationship, Palantir is well positioned to benefit from Trump’s focus on defense and border security. In fact, the company recently won a $480 million contract to boost the Pentagon’s AI battlefield intelligence project, Project Maven.
Additionally, Palantir’s involvement in the Starlab alliance for the commercial space station aligns with Trump’s interest in space exploration. What’s more, the AI boom continues to fuel Palantir’s growth, with revenue increasing 30% year-over-year in recent quarters. The company’s AI platform (AIP) has generated significant commercial demand, expanding its customer base beyond government contracts, and this differentiation, combined with improved profitability, has fueled investor enthusiasm. However, despite this enthusiasm, we cannot predict exactly how strong these Trump-driven streaks will be. The current earnings growth forecasts are strong, but as explained below, they are not sufficient to justify the current estimate.
Based on this, and despite my patience, I respect the company’s unique values. Palantir Technologies has emerged as a unique force in the technology landscape, with years of building data-centric operations and seamlessly combining SaaS expertise, AI leadership, and defense contracting capabilities. The company’s journey began in the early 2000s by providing data-centric solutions to the US government’s counter-terrorism efforts.
This early adoption of AI has put Palantir at the forefront of the current technology revolution and means it is somewhat entrenched in government operations. These established government relationships create significant barriers to entry, generating recurring revenue from the defense and intelligence sectors. What’s more, it’s supposed to be advanced because of its deep understanding of data ontologies, which has led to the creation of advanced language models.
This is supported by R&D investments totaling $446 million – around double what peer C3.ai (AI) spends. In addition, the company’s innovative “super cloud” approach enables platform interoperability across cloud solutions, expanding the potential for wider industry adoption. In short, Palantir has built a strong ecosystem and is leveraging strategic partnerships. This makes it a particularly relevant company with an ally in the White House.
However, my patience is limited to the company’s valuation despite strong fundamentals. The company recently highlighted that the 40-point rule – revenue growth + adjusted operating income margin – is returning to a high of 68% heading into Q4 2022, which goes a long way to highlight the strength of the business. However, the stock’s valuation parameters are extremely high. Palantir’s forward price-to-earnings (P/E) ratio of 176.8x is 618.7% above the sector median. Moreover, the company’s enterprise value to sales (TTM) ratio of 56.3x is 1,569.5% higher than the sector median.
Despite projected earnings growth, with EPS growth rates of 52.1% in 2024 and 25.5% in 2025, the stock remains undervalued. The P/E ratios for 2025 and 2026 are estimated at 140.9x and 116.7x, respectively, which is still significantly higher than industry benchmarks. Moreover, the all-important Price-to-Earnings-to-Growth (PEG) ratio now sits at 6.4 – 252.1% above the sector average.
While Palantir’s strong performance in the government and commercial sectors is commendable, its current valuation of 54x earnings indicates that investors are valuing continued exceptional performance. This leaves little room for error and could lead to significant downside risk if the company fails to meet these high expectations.
On TipRanks, PLTR comes in as a Medium Sell based on two Buy, eight Hold and seven Sell ratings given by analysts over the past three months. PLTR’s average share price is $46.57, indicating a downside risk of 31.7%.
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I am bullish on Palantir stock due to its overvalued valuation, which is well above industry standards. While the company benefits from strong fundamentals, AI-driven growth and ties to future management, these positive aspects are overshadowed by the speculative nature of current pricing. Palantir’s tailwinds may not warrant higher valuations, leaving limited upside and significant risk for investors.
