Palantir's Stock Doubled in 2025. Can It Repeat in 2026?

Palantir (NASDAQ: PLTR) has had an incredible 2025, with its stock up 140% so far. And it more than doubled in both 2023 and 2024, too. A three-year streak of triple-digit percentage gains is rare, but now, it's worth considering what would be required for Palantir to extend that run for a fourth year -- and whether or not that's a realistic expectation.

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Palantir's software business is rapidly expanding

Palantir develops artificial intelligence (AI)-powered data analytics software that is used in government and commercial applications. One of the biggest growth drivers for the company in recent years has been the launch of its Artificial Intelligence Platform (AIP), which allows users to deploy generative AI-powered agents to automate tasks. And that growth doesn't seem to be slowing.

In the third quarter, its revenues rose 63% year over year to $1.18 billion. Strength came from both of its markets, with government revenue rising 55% to $633 million and commercial revenue increasing 73% to $548 million.

Looking ahead to 2026, the consensus prediction among analysts is for its revenue to increase by 41%. I'd be somewhat skeptical of that figure, though, as Palantir has consistently beaten Wall Street's expectations for several years now.

The case against Palantir doubling

The primary issue that could keep Palantir from doubling again in 2026 isn't its growth rate -- it's its valuation. Since the start of 2023, the stock has risen by more than 2,700%, while the company's revenues have increased by 104%. That's a gross mismatch, which indicates that Palantir's stock price has become disconnected from its business performance. If you look at the valuation metrics, this thesis is confirmed.

PLTR PS Ratio data by YCharts.

The company's price-to-sales ratio of 119 and its forward price-to-earnings ratio of 251 are absurdly high. Few companies ever trade at such levels, and for good reason: It's hard for a business to expand fast enough to justify the expectations baked into such a premium. If the market were to revalue Palantir to trade at a more reasonable level relative to its growth rate -- say 50 times forward earnings -- the stock would decline by 80%. That should be a scary prospect for Palantir shareholders.

If Palantir can grow its revenue at a 40% compound annual rate for the foreseeable future and maintain the 40% profit margin it delivered during Q3, it would take over four years of growth for Palantir to bring its valuation down to 50 times forward earnings, based on its current share price. For comparison, AI chip leader Nvidia (NASDAQ: NVDA) grew its revenue at a 62% pace during its last quarter and currently trades at 39 times expected forward earnings.

I don't want to invest in a stock that requires unusually rapid growth for more than four years to justify today's stock price. With that much hoped-for growth already baked in, I think Palantir's stock will be flat to negative in 2026, so I'd stay away from it.

The case for Palantir doubling

There could be another factor contributing to Palantir's stock price growth: a perception that it's the next Tesla (NASDAQ: TSLA). The market has long traded Tesla at valuations that don't make sense based on its reported results alone, in part because investors believe in what the company is doing. Tesla's institutional ownership is much lower than that of other companies of its size, which indicates there is a larger cohort of small retail investors contributing to the direction of the stock rather than large financial institutions.

Palantir is the same way, and this has already resulted in the stock trading at valuations that do not make sense. And because of these factors, investors could well ignore the issues discussed above and continue pushing the stock along its upward trajectory.

I'm a fan of using reason and data to calculate the fair value of a stock, so I'm still on the sell side when it comes to Palantir. But as the great economist John Maynard Keynes famously warned: "Markets can remain irrational longer than you can stay solvent." Applied here, that suggests that shorting Palantir's stock might not be wise either. In my view, it would simply be best to stay away from Palantir -- there are far better AI investment options out there.

Keithen Drury has positions in Nvidia and Tesla. The Motley Fool has positions in and recommends Nvidia, Palantir Technologies, and Tesla. The Motley Fool has a disclosure policy.