Palantir Technologies: Another Stellar Year Ahead for the Stock?

Key Points

• Palantir Technologies became the S&P 500's top performer in 2024, with its stock surging 340%.
• The ongoing AI boom and strong financial results largely fueled the stock's record run in 2024.
• Despite its success in 2024, concerns about stretched valuations persist. 

Palantir Technologies NASDAQ: PLTR was the standout and number one performer in the S&P 500 in 2024, with its stock skyrocketing 340% in 2024 and elevating its market capitalization to an impressive $163 as of the January 17 close. As a leading SaaS company specializing in AI and big data analytics, Palantir has become somewhat of a poster child for the AI boom. However, after such a historic rally, concerns about its stretched valuation loom large. Can Palantir sustain its momentum in 2025, or is a pullback inevitable?

Palantir’s Rise to Dominance in 2024

Founded in 2003 by tech heavyweights including Peter Thiel and CEO Alex Karp, Palantir creates advanced platforms like Gotham, which is used for national security, and Foundry, which aids commercial clients in analyzing complex datasets. In 2024, the company’s focus on AI-driven solutions paid off handsomely, mainly through its Artificial Intelligence Platform (AIP), which saw widespread adoption across government agencies and private enterprises.

Palantir’s stellar financial performance bolstered investor confidence. In Q3 2024, the company reported a 30% year-over-year revenue increase to $725.5 million, driven by a 54% surge in U.S. commercial revenue. EPS exceeded estimates at $0.10, and GAAP net income doubled to $144 million. The company also expanded its customer base while benefiting from broader enthusiasm for AI-powered tools, making it the S&P 500’s top stock for the year.

Adding to its momentum, Palantir’s inclusion in the S&P 500 in September 2024 enhanced its visibility and attracted institutional investors. This was complemented by Alex Karp’s strategic focus on aligning Palantir’s growth trajectory with the AI revolution, positioning the company as a leader in the sector.

Concerns Over Valuation

Despite Palantir’s success, analysts are raising red flags about its valuation. With a current P/E ratio of 363 and a forward P/E of 151, Palantir trades at levels far above its peers in the tech sector. Its price-to-sales ratio of nearly 62 further underscores how much of its future potential is potentially already priced in.

The consensus among Wall Street analysts is cautious, with the stock carrying a Reduce rating and a projected downside of around 40%. For instance, Morgan Stanley recently issued an Underweight rating and a $60 price target, citing concerns over Palantir’s ability to sustain its valuation given slowing business momentum.

Adding to these concerns is the significant insider selling over the past year. In 2024 alone, insiders sold $2.52 billion worth of stock, with $1.4 billion of those sales occurring in Q4, including high-profile transactions from CEO Alex Karp, COO Shyam Sankar, and co-founder Stephen Cohen. So far in 2025, insiders have sold another $36 million. This level of selling, combined with no insider purchases during the same period, has raised eyebrows about internal confidence in the stock’s near-term trajectory and current valuation.

Waiting for a Pullback: When to Enter Palantir Stock

Palantir’s success story is tightly intertwined with the ongoing AI revolution. Its platforms, particularly AIP, are widely regarded as transformative for industries ranging from defense to healthcare. The company’s ability to secure long-term contracts with government agencies and commercial clients underpins its growth narrative.

The company is undoubtedly one of the most exciting growth stories in the market, with its innovative solutions and dominant position in AI and big data analytics. However, its valuation and recent insider activity suggest caution might be warranted.

For long-term investors, waiting for a pullback or correction to key support levels may offer a more favorable entry point. While Palantir’s narrative remains compelling, its current metrics indicate the stock might have run far ahead of its fundamentals.