Why Now's the Time to Dump Palantir Technologies Stock (PLTR)

Business Insider

2 days ago

Palantir Technologies (PLTR) has had another impressive year in AI, but its stock now trades as if it has already conquered every challenge it may face in the coming decade. With the share price up more than 430% over the past year and a forward P/E north of 670, investors are paying a steep premium for a narrative that still carries significant downside risk.
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While the company's operational momentum is undeniable, the gap between performance and valuation has grown too wide to overlook. For those sitting on substantial gains, this could be a prudent time to reevaluate. I'm issuing a Sell rating—though with a healthy dose of caution.
PLTR Blooms from Analytics to Commercial Enterprise
Many will consider the firm a newcomer, but Palantir began in 2003 as a government-focused data analytics firm and has since expanded into commercial enterprise software and full-stack AI. Its three flagship platforms, Gotham, Foundry, and Apollo, are now bolstered by AIP (Artificial Intelligence Platform), which integrates LLMs into core workflows. These tools enable clients across multiple industries to harness vast quantities of operational data, thereby transforming their decision-making.
Over the years, Palantir has steadily evolved its product suite to become modular, scalable, and commercially-friendly. That effort has clearly paid off by some distance. In Q1 2025, the company reported 769 customers, representing a 39% year-over-year increase. Revenue also jumped 39% to $884 million. U.S. commercial revenue alone surpassed a $1 billion annualized run rate, a key milestone that illustrates the company's deliberate shift away from a dependence on defense.
The financial health of the firm is also impressive, with an adjusted operating margin of 44% and adjusted free cash flow reaching $370 million. The quarter ended with over $5.4 billion in cash and comparatively low levels of debt. It's rare to see this combination of growth, profitability, and balance sheet strength in a company still considered fairly early in its AI commercial journey. But the valuation? That's where the story starts to unravel, but more on that later.
Strategic Direction & Market Context
Despite my caution, it's clear that Palantir isn't just riding the AI wave; it's still actively shaping it. With AIP, management is embedding AI directly into decision-making pipelines across some of the world's largest firms. It's not just building gimmicky chatbots or standalone copilots. It's building intelligent workflows that span logistics, operations, supply chains, and national security.
Despite promising diversification in recent years, government demand remains a key pillar for PLTR. The U.S. Army's $100 million contract to expand the TITAN battlefield AI platform marks a continuation of Palantir's leadership in military AI. And more broadly, defense and intelligence agencies continue to lean on Gotham for mission-critical decision-making. These are long-cycle, high-stakes contracts, sticky and significant for the balance sheet.
However, what really interests me is the commercial arena. Citi is utilizing Palantir for its wealth management operations while insurer AIG expects Palantir's underwriting software to double its five-year revenue CAGR. Meanwhile, restaurant chain Wendy's is detecting supply chain breakdowns within minutes using AIP. In these partnerships, Palantir is demonstrating its ability to solve core operational bottlenecks at scale, not just handle large amounts of data.
Even manufacturing is becoming a growth engine. Palantir's Warp Speed platform is helping drive U.S. reindustrialization efforts, positioning the company within one of the few bipartisan macro trends still standing: domestic supply chain resilience. All this gives Palantir a strong narrative and a foundation for multi-year growth. But even the best stories need to be priced appropriately, and that's where PLTR's bullish case becomes snagged.
Bullish vs Bearish PLTR Comparison
Palantir's fundamentals make a solid case for long-term optimism. The company is scaling rapidly, generating positive cash flow, and expanding its footprint across both traditional and emerging industries. In Q1 alone, it secured 139 contracts valued at over $1 million each—31 of which topped $10 million—highlighting strong commercial momentum.
A net dollar retention rate of 124% suggests not only repeat business but also expanding customer relationships. The company continues to add logos at a healthy clip, while deepening ties with many of its largest accounts. Throw in its cash-rich, debt-free position and positive margin trajectory, and it's clear that Palantir isn't a speculative growth story anymore; it's a mature, expanding business.
But even the best business can become a bad investment at the wrong price. Palantir's valuation is extreme by any metric. A forward P/E ratio over 670, an EV/Sales ratio approaching 92, and price-to-cash-flow multiples far exceeding sector averages raise doubts about PLTR's ability to sustain its performance in the medium to long term.
Valuation Analysis of PLTR Stock
I remain quite skeptical of the current valuation, but let's break down the numbers. Using management's FY25 revenue midpoint of $3.9 billion and projecting a slowdown to 20% annual growth by FY30, along with a 35% free cash flow margin, a 9% WACC, and a 4% terminal growth rate, the fair value comes out to roughly $111 per share. That's about 25% below the current market price, suggesting investors are paying a premium even under relatively bullish assumptions.
From this brief overview of the competition, it feels that Palantir is now trading not just above peers, but above nearly every rational comparison. Unless growth significantly accelerates or margin expansion goes parabolic, these multiples are simply unsustainable.
Is Palantir Technologies Stock a Strong Buy?
On Wall Street, PLTR stock carries a Hold consensus rating based on three Buy, ten Hold, and three Sell ratings over the past three months. PLTR's average stock price target of $104.85 implies almost 30% downside potential over the next twelve months.
Palantir Remains a Great Company and a Risky Stock
Palantir's rise over the past few years has been impressive by nearly every measure. It has evolved from a misunderstood government contractor into a key player in the AI-powered enterprise stack, with a diverse client base spanning defense, finance, healthcare, insurance, and manufacturing. Its cash flow is solid, and its competitive moat remains intact—for now.
That said, I believe the market may be getting ahead of itself. At current valuations, Palantir isn't just priced for continued execution—it's priced for perfection. That's a precarious position, and it leads me to a cautious Sell rating. If there's one lesson the market consistently reinforces, it's this: great companies don't always translate into great stocks, especially when expectations are sky-high.