Is It Time to Take Profits in 1 of the Biggest AI Winners?

There's no denying that Palantir Technologies (NASDAQ: PLTR) has been one of the biggest winners in the artificial intelligence (AI) space. Its stock is up about 1,000% over the past five years, and is one of the best performers in the S&P 500 (SNPINDEX: ^GSPC) over the past two years. While you can question the company's valuation, one thing you can't deny is that this is a company hitting on all cylinders.

That said, let's dig in to see if now may be a good time to take some profits in Palantir.

Image source: Getty Images.

An AI leader

For those unfamiliar with Palantir, the company was founded by a team that included PayPal co-founder Peter Thiel, who invested a significant amount of his own money into the start-up. Following the 9/11 terrorist attacks, Thiel believed he could adapt technology similar to PayPal's fraud detection system that could then be used to track suspicious financial transactions and uncover terrorist networks.

Palantir's first solution, called Gotham, was able to gather data from a wide array of different sources and help data analysts identify any unusual patterns, even ones that might be hard for them to recognize on their own. Palantir's technology was soon being used to help the U.S. government with mission-critical tasks, such as fighting terrorism and later tracking COVID-19.

That foundation is now the backbone of the company's current AI platform (AIP). Instead of looking to develop its own large language model (LLM), Palantir decided to focus on the workflow and application layers of AI to make it more useful in the real world. It does this by once again gathering data from a wide variety of disparate sources and then organizing it into an ontology that it then links to real-world assets and processes.

This clean, well-organized data helps significantly reduce AI hallucinations (wrong or made-up information), making AI more usable for solving real-world problems. In essence, Palantir has created an AI operating system that users can plug in third-party LLMs to get the best out of them.

Since its introduction of AIP, Palantir's growth has skyrocketed. Its revenue growth has accelerated for nine consecutive quarters, culminating in 63% growth in Q3 to $1.18 billion. The growth is being led by U.S. commercial customers, who have begun to embrace its platform. Last quarter, its U.S. commercial revenue soared 121% to $397 million, while its U.S. commercial remaining deal value surged 199% to $3.63 billion.

Its U.S. commercial growth is coming from both new and existing customers. In Q3, Palantir's customer count climbed by 45%, while its net dollar retention, which measures revenue growth from existing customers that have been with the company for over a year, was a robust 134%. Any number over 100% represents growth. Overall, it closed $1.31 billion in U.S. commercial deals in the quarter, a whopping 342% year-over-year increase.

The beauty of AIP is its breadth. The platform can be used to solve a wide variety of problems across various industries. It's being used for everything from helping hospitals track sepsis to improving insurance underwriting to supply chain management optimization. Meanwhile, it's just starting to move into AI agents, using its AI Hivemind platform, which was initially created for the classified space, as an AI orchestration platform.

Is it time to take profits in Palantir?

Of course, the elephant in the room with Palantir is valuation. The stock currently trades at a price-to-sales (P/S) multiple of about 68 times the 2026 analyst consensus. While that's actually fallen in the past few weeks, it's still a huge multiple. If market sentiment turns bearish, there is the potential that the stock could get cut in half from here, given its frothy valuation.

As such, I think it's not a bad idea to take some profits in Palantir at the moment. However, I also think that Palantir has the opportunity to grow into one of the largest companies in the world over time, given its technology, but it's not going to happen in a straight line. As such, investors can take some profits and look to ready shares if there is a big pullback in the stock at some point.

Geoffrey Seiler has positions in PayPal. The Motley Fool has positions in and recommends Palantir Technologies and PayPal. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short December 2025 $75 calls on PayPal. The Motley Fool has a disclosure policy.