Palantir Stock: A Valuation Conundrum Amidst Explosive Growth

The meteoric rise of Palantir Technologies' share price presents investors with a classic growth-versus-value puzzle. Over a mere three-year span, the data analytics specialist's equity has soared by more than 2,700%, a staggering rally that forces even bullish market participants to question its sustainability. With a market capitalization now hovering around $450 billion and valuation multiples that defy conventional benchmarks, the investment thesis faces intense scrutiny.

Fundamental performance metrics remain robust. For the third quarter of 2025, Palantir reported a 63% surge in revenue, reaching $1.18 billion. A standout performer was its U.S. commercial business, where sales exploded by 121% to $397 million. Government contract revenue also saw substantial growth, climbing 55%.

This commercial momentum is largely attributed to the company's Artificial Intelligence Platform (AIP). Launched in 2023, AIP integrates generative AI capabilities into Palantir's existing software infrastructure, enabling clients to build AI-assisted workflows with varying levels of automation. The platform's architecture-agnostic design is a key advantage, allowing integration with both centralized cloud environments and decentralized blockchain infrastructures.

The success is quantifiable: Palantir secured 204 contracts valued at $1 million or more last quarter, including 53 deals exceeding $10 million. Its roster of U.S. commercial customers expanded to 530, indicating deepening penetration within the enterprise market.

Profitability and Customer Expansion

Operational efficiency appears strong. The company posted a net income margin of 40% and a GAAP operating margin of 33%, underscoring a profitable business model. Its total customer count grew 45% year-over-year, reaching 911.

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

The Core Dilemma: Extreme Valuation Metrics

Herein lies the central conflict. Despite impressive growth, Palantir's valuation has expanded at a far more rapid pace. The stock is currently trading at approximately 120 times sales and over 400 times earnings. This stands in stark contrast to typical software firms, which commonly trade between 10 and 30 times sales. A telling comparison: while shares have appreciated over 2,700% since early 2023, revenues have increased by 104%. This indicates the rally is primarily fueled by multiple expansion rather than fundamental growth alone.

Government Business: A Stable Foundation

The government sector continues to provide a reliable revenue stream, characterized by high switching costs and recurring contracts. A recent award highlights this stability: a $448 million contract with the U.S. Navy for managing the nuclear submarine supply chain. Palantir's entrenched position within U.S. defense and AI infrastructure likely ensures ongoing demand. Potential future initiatives, such as the proposed "Golden Dome" missile defense program under a Trump administration, could provide further tailwinds, though competitors like Lockheed Martin are also contenders.

Divided Analyst Sentiment

Wall Street's view is fragmented, reflecting the valuation debate. Of the 27 analysts covering Palantir, only seven recommend buying the shares. Seventeen advise holding, and three suggest selling. Price targets vary widely, signaling profound disagreement on the stock's appropriate worth.

Looking ahead, observers anticipate a growth deceleration, forecasting roughly 41% revenue growth for 2026. At current valuation heights, this leaves minimal room for operational missteps or disappointment. Any deviation from the market's elevated expectations could trigger significant share price volatility.