Long-term investors generally try not to think too much about a stock's short-term price movement. Still, it's hard to ignore a stock going through the volatility Palantir Technologies (PLTR -4.33%) has seen in 2025. The artificial intelligence (AI) stock surged as much as 1,840% since the start of 2023. However, when volatility hit the market beginning in February, the stock quickly shed as much as 40% of its value from the highs. These whiplash movements can be emotionally draining for investors.
Now, the stock seems to be springing back. Palantir has already pulled back about half of those recent losses, leaving investors wondering whether they should buy before it ascends to new highs. So, should you buy Palantir stock now?
Palantir's impressive growth is real and could last a while
Palantir builds custom software applications for government and commercial customers. This software uses analytics, machine learning, and artificial intelligence (AI) to turn an organization's data into actionable insights in real-time.
It makes Palantir's software flexible. Some of Palantir's use cases include optimizing supply chains, managing hospitals, detecting financial fraud, and aiding military intelligence and mission operations. Palantir's growth has continuously accelerated since the company launched its AIP platform for AI applications in mid-2023:
Data by YCharts.
Investors have flocked to the stock because they expect the company's growth to last for years. Such flexible technology opens up a vast addressable market. Palantir's customer count grew 43% in the fourth quarter of 2024 to 711. There are 20,000 companies with at least 500 employees in the United States alone, which shows how much room for expansion remains in the private sector.
Palantir's early years centered around government work, and it's still growing there. Revenue from the U.S. government grew 30% year over year in Q4 and totaled $1.2 billion last year. Palantir's companywide revenue won't accelerate forever, but it seems clear that it has established itself as a leader in AI software and its application to real-world use cases.
There's a tremendous market for that, so Palantir's success these past two years is no fluke.
Investors have priced lots of future growth into the stock
Now, it's time to separate the stock from the business, and that's where some red flags appear.
The share price has risen about 1,400% since the start of 2023, but Palantir's trailing-12-month revenue has only grown 40%, and net income has grown 213%. In other words, the stock is growing faster than the business. When that happens, investors are essentially paying for business results further into the future.
That's a dangerous game because there's more time for things to go wrong. Perhaps Palantir's growth slows, or the broader market crashes. There is also opportunity cost because you could earn a return on your money in another stock while waiting for Palantir's business to catch up to its share price.
NASDAQ: PLTR
Key Data Points
Palantir currently trades at a price-to-sales ratio of 81. That's an excessive valuation by virtually any comparison. Even Nvidia, arguably the most dominant AI stock of the past three years, topped out at a P/S ratio of 45; Palantir is nearly twice that. Palantir's price-to-earnings ratio is over 500. That's irrationally high for a company analysts estimate will grow earnings by an average of 25% annually over the long term. Even 50% annualized earnings growth wouldn't justify the current valuation.
Share dilution could eventually diminish investment returns
The last straw I found was the company's aggressive stock-based compensation, which effectively causes share dilution that will diminish the stock's per-share financials and, thus, its investment returns over time. The more shares there are, the more revenue and profits are spread across the shareholder base. Palantir's $691 million in paid trailing-12-month stock-based compensation represents an eye-watering 24% of revenue. Nvidia's stock-based compensation is just 3.7% of its trailing-12-month sales.
Can Palantir Technologies continue ascending and reach a new all-time high? Of course! The market can do funny things, and I wouldn't pretend I can predict them. But looking at the fundamentals, it's evident that Palantir's stock is egregiously overvalued and susceptible to further declines as soon as sentiment, either across the market or toward Palantir specifically, turns south.
Palantir Technologies is an exciting company, but its stock is not a buy now. Investors should consider waiting for a far better entry point, which may not come without a dramatic pullback from where it's already dipped in recent weeks.
