The info mining and analytics agency continues to be rising like a weed.
It has been a troublesome 12 months for a lot of tech shares. Because the Trump Administration’s unpredictable tariffs, the messy commerce conflict with China, and elevated charges drive traders towards extra conservative investments, many high-growth tech performs misplaced their luster.
But one inventory that bucked that sell-off was Palantir (PLTR 1.64%). On the time of this writing, Palantir has rallied greater than 40% year-to-date, whereas the Nasdaq has declined over 10%. Let’s have a look at why Palantir stayed sizzling on this chilly market — and if it is nonetheless price chasing at these ranges.
Picture supply: Getty Pictures.
What does Palantir do?
Palantir, which was named after the all-seeing orbs from The Lord of the Rings, is an information mining and analytics firm that gathers information from myriad sources. It makes use of that information to identify developments and assist its purchasers make extra knowledgeable selections.
Palantir operates two predominant platforms: Gotham for its authorities prospects and Foundry for its industrial prospects. Most of America’s authorities companies and navy branches already use Gotham to gather information and plan their operations. Huge corporations like Morgan Stanley and Airbus use Foundry. It additionally permits its purchasers to create their very own synthetic intelligence (AI)-powered apps, actions, and brokers throughout each platforms.
Palantir was initially funded by the CIA’s enterprise capital arm, and authorities contracts drove a variety of its preliminary progress. Its expertise was reportedly used to search out Osama Bin Laden, find undocumented migrants for ICE, and help Israel’s protection towards Hamas. It leveraged that battle-hardened repute to achieve extra industrial prospects.
Why did Palantir’s inventory skyrocket?
Palantir went public by way of a direct itemizing as a substitute of an IPO on Sept. 30, 2020. On the time, it predicted it might develop its annual income by no less than 30% yearly by means of 2025.
The corporate really exceeded these estimates with 47% progress in 2020 and 41% progress in 2021. Nevertheless, its income solely rose by 24% in 2022 and grew by 17% in 2023. That slowdown was brought on by the uneven timing of its authorities contracts and macro headwinds for its industrial prospects.
Nevertheless, as Palantir’s income progress slowed down, it streamlined its spending and diminished its stock-based compensation bills. Consequently, it turned worthwhile on a typically accepted accounting rules (GAAP) foundation in 2023.
In 2024, Palantir’s income elevated 29% as its GAAP earnings per share greater than doubled. That acceleration was pushed by the expansion of its U.S. industrial enterprise, which confronted milder headwinds as rates of interest declined, and geopolitical conflicts, which sparked recent demand for its government-oriented companies. Extra of its prospects are additionally utilizing its AI instruments to develop their very own AI purposes. Its accelerating income progress and hovering income drove away the bears, and its inventory skyrocketed.
Palantir’s rising market cap and secure profitability led to its inclusion within the S&P 500 final September. It was additionally added to the Nasdaq-100 final December. Its addition to these two main indexes may appeal to extra consideration from long-term traders.
For 2025, Palantir expects its income to rise 31% because it stays worthwhile on a GAAP foundation. From 2024 to 2027, analysts anticipate its income and GAAP EPS to develop at a compound annual progress charge (CAGR) of 31% and 51%, respectively. That rosy outlook makes it one of many market’s fastest-growing tech shares.
However three points may restrict Palantir’s positive aspects
Palantir’s future appears to be like brilliant, however traders should not ignore its three main weaknesses. First, its valuations look overheated. With a market cap of $253 billion, it already trades at 67 occasions this 12 months’s gross sales. At its present value of $109 per share, it trades at 354 occasions this 12 months’s GAAP EPS. These valuations make Palantir look extra like a meme inventory than a lovely progress inventory.
Second, most of its current acceleration was pushed by its U.S. industrial enterprise, which accounted for twenty-four% of its prime line in 2024. The Trump Administration’s tariffs may power a few of these massive prospects to rein of their spending and make it harder for Palantir to safe new contracts. Lastly, Palantir’s authorities enterprise might be affected by the Trump Administration’s plans to rein in authorities spending. Palantir has gained some new authorities contracts this 12 months, however Protection Secretary Pete Hegseth beforehand requested the Pentagon to trim the U.S. protection price range by 8% yearly over the subsequent 5 years.
These points may trigger Palantir to overlook its personal bold targets once more, because it did in 2022 and 2023, and its bubbly valuations may pop. So, whereas Palantir’s enterprise continues to be rising, I do not assume traders ought to chase its inventory at these ranges. It may simply be lower in half and nonetheless be thought of costly — so traders ought to look ahead to a pullback earlier than pulling the set off.
Leo Solar has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Palantir Applied sciences. The Motley Idiot has a disclosure coverage.
