Is Palantir Stock Set to Soar Again in the New Year?

Many analysts -- myself included -- said it was a bad idea to buy Palantir Technologies (NASDAQ: PLTR) in 2025. Today, we have egg on our faces. Palantir stock is up 142% year to date (YTD) as of this writing on Dec. 9, 2025.

The company is accelerating its revenue growth and has been deemed one of the big winners of the artificial intelligence (AI) boom. Its stock price continues to run higher and higher with no signs of slowing.

Now up by nearly 2,000% since going public more than five years ago, Palantir is the 22nd-largest company in the world by market capitalization, worth $433 billion. Is the stock set to soar yet again in the new year? Or will 2026 finally be the year that Palantir has its comeuppance?

Accelerating growth due to AI

Palantir's AI software and analytics platform for large organizations (including U.S. government agencies) has seen accelerating adoption in the last few years. Last quarter, revenue was up 63% year over year to $1.18 billion, with U.S. commercial revenue growing 121% to $397 million.

It seems like every large enterprise in the United States wants a piece of that sweet Palantir magic. Last quarter alone, it signed $2.76 billion in contracts, with 204 deals worth more than $1 million. This should help the company keep compounding its revenue over the rest of this decade.

As the company's revenue starts growing into the billions, operating leverage is starting to show up. Operating margin was 33% last quarter, equaling $393 million in operating income. Cash flow keeps piling up on the balance sheet, with huge margin expansion occurring in the last few years. Just three years ago, in 2022, Palantir had steeply negative operating earnings.

Image source: Palantir.

A stock valuation getting out of control

When you see Palantir's income statement and revenue growth acceleration, it becomes clear why the stock is now a market darling. But market darlings do not guarantee future returns for shareholders.

When looking at Palantir stock a year ago, I thought it was wildly expensive with a trailing price-to-sales ratio (P/S) of 68. The average stock in the S&P 500 has a P/S ratio of 3.4, making Palantir one of the most expensive large-cap stocks in history at the beginning of this year, at least based on the P/S ratio.

Well, it has now topped itself. Even with its impressive revenue growth this year, Palantir now has a P/S ratio of just under 120. That means if it generated its existing revenue for the next 120 years and turned all its revenue into earnings (assuming zero expenses), the stock would simply give shareholders their money back, netting zero returns.

Does that sound like a good deal to you?

PLTR PS Ratio data by YCharts. PS Ratio = price-to-sales ratio.

Will Palantir stock soar in 2026?

It is difficult to answer whether Palantir stock will soar in 2026. The stock's performance rests entirely on the continuation of the AI bull market, which may be turning into a bubble. Nobody knows when this bull market will break, and if Palantir was overvalued at a P/S ratio of 68 and 120, there's nothing stopping traders from pushing it up to a P/S ratio of 200.

Over the long run, it is clear that Palantir will disappoint any investor who holds on today for the next decade. Taking Palantir's revenue of $3.9 billion and assuming 50% revenue growth for the next decade -- an absurdly optimistic scenario for an enterprise software company -- you will have a business generating $75 billion in revenue. For reference, this is revenue greater than any software company in existence.

Assuming a 40% profit margin, Palantir will be generating $30 billion in bottom-line earnings in 10 years. Compared to the current market cap of $422 billion, you have a price-to-earnings ratio of 14.4, which is not that cheap for a mature business. Add back some shareholder dilution, and the stock probably generates a slight positive return over the next 10 years.

What this means is that, even if Palantir delivers unbelievable growth, the stock will maybe have an average return going forward. That is an illogical proposition for any value investor to make, meaning Palantir stock is one to avoid unless it crashes from here.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.