Why Palantir Technologies Surged 135% in 2025, and Why It Could Go Even Higher

Shares of Palantir Technologies (NASDAQ: PLTR) took flight in 2025, soaring 135% for the year. The dawn of generative AI represented a singular opportunity, and the company tapped into its vast experience to help usher businesses into the 21st century.

Palantir has been developing artificial intelligence (AI) systems for the U.S. government, intelligence agencies, and law enforcement for more than 20 years. The company was able to adapt its systems to provide AI-centric business solutions with the introduction of its artificial intelligence platform (AIP), which marked a turning point for Palantir.

Let's take a look at how this fueled Palantir's gains in 2025 and why its winning streak is poised to continue.

Image source: Getty Images.

Answering the call

One of the biggest challenges to adopting AI is determining how to effectively implement these solutions while still achieving an adequate return on investment (ROI). Moreover, most executives lack the necessary expertise to choose the best way to implement AI solutions to address their most critical business challenges. By integrating AIP into existing business systems, Palantir eliminates the guesswork.

There's no question that AIP is driving Palantir's results, which was evident in the company's results. In fact, in each of the four financial reports released in 2025, Palantir delivered accelerating revenue growth, and its profits continue to reach new heights.

In the third quarter, Palantir's revenue grew 63% year-over-year and 18% quarter-over-quarter to $1.18 billion, while earnings per share (EPS) of $0.21 soared 110%. While that's impressive in its own right, it masks the robust growth just beneath the surface. Palantir's U.S. commercial segment -- which includes AIP -- grew 121% year-over-year and 29% sequentially to $397 million, now representing 34% of the company's total revenue.

There's more. Palantir's Rule of 40 score, which gauges the quality of its earnings, is 114% -- when any number above 40% signifies a healthy financial picture. Moreover, the company's remaining performance obligation (RPO) -- which provides keen insight into future revenue -- stands at a massive $2.6 billion, more than $1 billion and 60% higher than its level one year ago. Finally, Palantir's net dollar retention rate, which measures additional spending by existing customers, is 134%. Put another way, Palantir's current customers spent 34% in the current quarter than they did at the same time last year.

If there's one downside to this otherwise attractive opportunity, it's the remarkably high valuation. Palantir stock currently trades for 420 times earnings, which makes it a risky stock prone to extreme volatility.

Mind you, this isn't the first time a highly successful company sported an egregiously high multiple. At one point in 2012, a little company called Amazon had a price-to-earnings (P/E) ratio of more than 3,500 -- though it ultimately came back to earth.

For investors concerned about the high valuation, I would recommend buying a small amount of Palantir and adding to it on weakness, or simply dollar-cost averaging into the stock. The company's robust revenue growth, increasing profitability, and solid future demand paint a compelling picture that's hard to ignore.

Danny Vena, CPA has positions in Amazon and Palantir Technologies. The Motley Fool has positions in and recommends Amazon and Palantir Technologies. The Motley Fool has a disclosure policy.