TLDR:
- Palantir stock has surged over 1,000% in three years and 550% since January 2024
- Q1 2025 showed strong growth with 71% increase in U.S. commercial revenue and 45% in U.S. government revenue
- CEO Alex Karp described “ravenous whirlwind of adoption” and raised full-year guidance
- At 87 times sales, PLTR is the most expensive software stock by a wide margin
- Historical patterns show software stocks trading above 100x sales typically fall at least 70%
Palantir Technologies (PLTR) stock has been on an extraordinary run, climbing more than 1,000% over the past three years and 550% since January 2024. This makes it the top performer in the S&P 500 and second-best in the Nasdaq-100 during this period.
The company’s Q1 2025 earnings report delivered impressive numbers that continued to fuel investor excitement. Palantir reported a 71% increase in U.S. commercial revenue and a 45% gain in U.S. government revenue.
The total contract value for U.S. commercial business reached a record $810 million, representing a 183% year-over-year increase. Customer count continues to grow, with U.S. commercial customers now at 432, compared to just 14 about five years ago.
CEO Alex Karp didn’t hold back his enthusiasm during the earnings call. “Palantir is on fire,” he declared.
In his letter to shareholders, Karp wrote, “We believe our results are indicative of a revolution sweeping across our business and industry.” He described seeing a “ravenous whirlwind of adoption” as customers rush to implement Palantir’s AI-powered data solutions.
The AI Advantage
Palantir’s growth has been largely driven by its Artificial Intelligence Platform (AIP), launched two years ago. This platform helps customers make better use of their data through AI-assisted decision-making.
The company sells software platforms that aggregate customer data and help organizations utilize it effectively. These applications range from battlefield strategy to hospital workflow management.
This unique position in the AI market has helped Palantir maintain strong momentum. The company achieved a Rule of 40 score of 83% in Q1, showing its ability to balance growth and profitability. For reference, software companies aim for at least 40% on this metric.
Management is so confident in future growth that they raised their full-year 2025 guidance. Revenue is now expected to be between $3.89 billion and $3.9 billion, up from previous estimates of $3.74 billion to $3.75 billion.
Valuation Concerns
Despite the strong performance, many analysts warn about Palantir’s sky-high valuation. The stock currently trades at 87 times sales, making it the most expensive software stock on the market.
Louie DiPalma at William Blair Research points out that Palantir trades at 64 times 2026 consensus sales. The second-highest software stock, CrowdStrike, trades at just 18 times. This means Palantir could fall 70% and still be the most expensive software stock.
Historical data raises even more red flags. Over the past 20 years, only six other software companies have achieved price-to-sales ratios above 100. All of them eventually fell at least 70%.
These companies include Bill Holdings (down 85%), Cloudflare (down 44%), SentinelOne (down 74%), Snowflake (down 57%), SoundHound AI (down 62%), and Zoom Communications (down 86%). The average peak-to-trough decline was 81%.
If Palantir follows this historical pattern, its share price could fall from its peak of $125 to around $23.75 – a 78% drop from its current price of about $110.
Wall Street remains divided on Palantir’s future. While Dan Ives at Wedbush predicts a trillion-dollar market cap within 2-3 years (285% upside), most analysts are more cautious. The median 12-month target price among 27 analysts is $98, implying an 11% downside.
For long-term investors who believe in Palantir’s growth story, the current valuation might be less concerning. The company may be in the early stages of its commercial and government business growth, with substantial expansion still ahead.
Short-term investors should be aware of the potential volatility. History suggests that Palantir’s current valuation of 87 times sales is unlikely to be sustainable in the coming months.
Palantir expects to deliver GAAP operating income and net income every quarter this year, showing its commitment to profitability alongside growth.
The most recent quarter saw Palantir’s customer base climb 39% to 769, while existing customers spent 124% more on average. This resulted in a 39% revenue increase to $884 million and a 62% jump in non-GAAP earnings to $0.13 per diluted share.
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