Palantir Shares Face Valuation Concerns Despite Record Performance

The data analytics firm Palantir finds itself in a familiar market predicament. Its latest quarterly report, while showcasing exceptional operational metrics, has failed to satisfy the sky-high expectations built into its stock price. This divergence highlights a growing tension between the company's impressive fundamental growth and its premium market valuation, leaving investors to question whether the current share price is sustainable.

Operationally, Palantir's third quarter for 2025 demonstrated remarkable strength. Revenue surged by 63 percent to reach $1.181 billion, significantly surpassing Wall Street's forecasts. Earnings per share doubled to $0.21. A particularly standout performance came from its U.S. commercial business, which expanded by a staggering 121 percent.

Despite these powerful results, the equity has retreated approximately 15 percent from its November peak. This market reaction underscores a classic dynamic: when investor expectations are set extremely high, even outstanding quarterly figures can trigger disappointment and profit-taking.

The Core Issue: A Lofty Valuation Multiple

The central challenge for Palantir is its valuation. The stock currently trades at 430 times its forward earnings—an exceptionally rich multiple, even when measured against other high-growth technology companies. This premium leaves the shares vulnerable to any sign of deceleration in its growth narrative, however slight.

This dichotomy is reflected in the analyst community. Some market experts, such as Wedbush's Daniel Ives, view any share price weakness as a buying opportunity. Conversely, other firms remain cautious; RBC Capital Markets maintains its "Underperform" rating, expressing doubts about the long-term sustainability of the current growth trajectory.

External Pressures Add to the Strain

Further pressure emerged with the disclosure that prominent investor Michael Burry has established a speculative position through put options on five million Palantir shares. This bearish bet signals a degree of market skepticism and contributes to the negative sentiment.

Should investors sell immediately? Or is it worth buying Palantir?

The company is also navigating a broader sector-wide reassessment. The technology sector is experiencing a cooling period as investors re-evaluate the elevated valuations of AI-focused stocks. Broader concerns, including uncertainty surrounding the U.S. Federal Reserve's interest rate policy and questions about the durability of massive AI investments, are weighing on the entire industry.

Operational Momentum Remains Unabated

It is crucial to note that Palantir's underlying business momentum appears robust. The company has raised its full-year revenue guidance to $4.4 billion, implying a growth rate of 53 percent. Its customer base grew by 45 percent to 911 companies, and, importantly, existing customers increased their spending by an average of 34 percent.

The company's strategic positioning could be further strengthened under the new Trump administration. Several appointed officials, including AI envoy David Sacks, have existing ties to Palantir, potentially providing a tailwind for its already substantial business with U.S. government agencies.

Path Forward for the AI Leader

For investors with a long-term horizon, the current price correction may present an entry point into a high-quality growth story. However, the elevated valuation offers very little room for operational missteps or a slowdown in expansion.

The pivotal question remains: Can Palantir maintain its extraordinary growth pace long enough to justify the market's premium expectations? The upcoming quarterly report will be critical in determining whether this pullback is a healthy market correction or the beginning of a more profound valuation reset.