Shares in government-focused data analytics company Palantir Technologies (PLTR 4.63%) hit their all-time high of $124.62 in February 2025. At the time, the company was soaring amid optimism about the Trump presidency, which many expected to be beneficial for technology deregulation and the U.S. military industry.
Some of these tailwinds remain. However, with Palantir's shares down 29% from their peak, investors are clearly getting skittish about the company's future. Let's dig deeper into the pros and cons of Palantir stock to decide if it's time to double down or jump ship.
NASDAQ: PLTR
Key Data Points
A virtually tariff-proof business
On April 2, the Trump administration dashed Wall Street's optimism by announcing sweeping "reciprocal tariffs" on most of the U.S.'s trade partners. This move sent many tech stocks into a tailspin because of their complex international supply chains and foreign operations, which could make them the targets of retaliation. However, Palantir bucked this trend.
While "Magnificent Seven" stocks like Apple and Tesla crashed, Palantir has held on to its value since the tariff announcement. Palantir's outperformance may have something to do with its business model.
As a software-as-a-service (SaaS) company, Palantir provides big data analytics and AI services to private and public sector clients. This revenue stream is unlikely to be impacted by tariffs because it doesn't involve physical hardware. Operations are also primarily domestic, with U.S. clients representing around 67% of fourth-quarter revenue.
The valuation is still too high
Unfortunately for potential new investors, Palantir's resilience means its equity is still quite expensive. With a forward price-to-earnings (P/E) multiple of 164, shares are valued 8 times higher than the S&P 500 average of 20. And Palantir's fundamentals don't justify this price tag.
The company's fourth-quarter revenue grew 36% year over year to $827.5 million. And while that is a respectable number, it's far from the earth-shaking expansion that would justify such a high earnings multiple. For context, AI leader Nvidia trades for a forward P/E of just 25 despite growing its top line by 78% year over year in the corresponding period. The situation gets even worse when we look at Palantir's bottom line.
Image source: Getty Images.
While management claims adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $378.5 million (up 75% from the prior year period), this figure makes some huge adjustments.
For starters, Palantir spent $281.8 million on stock-based compensation, which represents the value of stock issued and used to pay employees. While this can help motivate the workforce and save cash resources, it is a real expense. The downside is that it increases the number of shares outstanding, which dilutes existing shareholders' ownership of the company. It may also cause investors and analysts to overestimate the strength and profitability of Palantir's business model.
The Trump trade is over
Palantir is one of several stocks and cryptocurrencies that boomed after Donald Trump's election victory in November. And while shares are down substantially from their all-time high reached in February, they have held up better than several other assets that rallied during that time.
The good news is that despite Palantir co-founder Peter Thiel being a public supporter of Trump, the company has avoided becoming a political lightning rod (unlike Tesla), and its software-focused business model is mainly immune to tariff-related disruptions. That said, Palantir's modest growth and excessive stock-based compensation expense make its valuation look unsustainable. And investors should wait for shares to get cheaper before considering a position in the company.
