Palantir Technologies (PLTR 2.75%) cemented its place as a leader in artificial intelligence (AI) innovation following a breakout year in 2024. The company successfully expanded beyond its traditional focus on national security applications for government agencies, leveraging its AI technology and big data analytics to deliver solutions for commercial customers. This shift, coupled with strong growth and accelerating profitability, propelled the stock to a spectacular 349% gain in the past year.
With market optimism surrounding Palantir's momentum heading into 2025, can the rally continue, or has the opportunity already passed?
Let's discuss what to do with the stock now.
The case to buy Palantir's stock now
Palantir stands out for its expertise in data integration and analysis software, excelling at connecting vast datasets from various sources and enabling organizations to create unified data ecosystems for improved decision-making. The company's breakthrough came with the 2023 launch of its Artificial Intelligence Platform (AIP), which applies large language models, machine learning, and generative AI to enhance analytical capabilities. AIP's ability to automate tasks and create custom workflows with predictive, actionable insights is highly popular across numerous industries.
The trends have been impressive. In the third quarter, revenue increased by 30% year over year, while adjusted earnings per share (EPS) of $0.10 rose 43% from the prior-year quarter. Beyond these headline numbers, key performance metrics reveal an even stronger picture. In the United States, enterprise-level commercial customers surged 77% to 321, propelling U.S. commercial segment revenue up 54%.
The trajectory suggests a significant runway for high-margin commercial applications in the U.S. to further boost profitability, with an even larger untapped opportunity internationally. Co-founder and CEO Alex Karp described the results as driven by "unrelenting AI demand that won't slow down," emphasizing that the growth is only beginning.
Image source: Getty Images.
The company is guiding for full-year 2024 revenue of around $2.8 billion, representing a 26% increase from 2023, which will be confirmed in the upcoming fourth-quarter earnings report set to be released on Feb. 3. According to Wall Street analysts, 2025 is positioned to be another record year, with the EPS target of $0.48 representing a 26% increase from the current 2024 estimate of $0.38.
Investors confident in the company's outlook and market potential have compelling reasons to buy the stock.
| Metric | 2024 Estimate | 2025 Estimate |
|---|---|---|
| Revenue | $2.8 billion | $3.5 billion |
| Revenue growth (YOY) | 25.9% | 24.7% |
| Adjusted EPS | $0.38 | $0.48 |
| Adjusted EPS growth (YOY) | 52% | 26% |
Data source: Yahoo Finance: YOY = year over year.
The case to sell Palantir stock now
While there's a lot to like about Palantir's high-growth outlook, it's a smart idea to take a critical look and examine potential risks.
One area of uncertainty is how the market opportunity for AI-powered data analytics will evolve. Palantir carved out an early leadership position but other tech giants, including players in the big data space, are likely to incorporate similar AIP features for specific use cases to capture new business.
Another concern is Palantir's valuation. Shares are trading at 159 times the current consensus 2025 EPS, well above the average forward price-to-earnings (P/E) ratio for a peer group of AI leaders. Companies like International Business Machines with a forward P/E of 21, Alphabet at 22, Microsoft at 34, or even SAP at 43 are a bargain by comparison.
On one hand, Palantir's earnings premium could be justified based on its exceptional operating and financial momentum. Still, it could pose a problem for shareholders in a scenario where results begin to underwhelm against high expectations. Investors who believe Palantir has reached peak growth and will face competitive storms on the horizon could consider selling the stock today.
PLTR PE Ratio (Forward) data by YCharts
Decision time: The prudent move is to hold
Balancing the pros and cons of investing in Palantir, I believe the stock's current valuation makes it difficult to buy with conviction. There are likely enough strong points for shareholders to hold but investors who missed the recent rally may find more compelling opportunities elsewhere in the stock market. The silver lining is that patience could reward investors, as the possibility of a market correction might offer an opportunity to acquire shares at a lower and more attractive price.
