Down 30% From Its All-Time High, Is Now the Perfect Buying Opportunity for Palantir's Stock?

Entering April, artificial intelligence (AI) stocks were not loved by the market. Many were well off their all-time highs, and investors were questioning their decision to invest in this space. However, if you stayed patient, you've seen many stocks rally to nearly all-time highs. But not every AI stock is at that point.

One popular AI pick that hasn't seen nearly that level of success is Palantir (NASDAQ: PLTR). Palantir's stock is down around 30% from its all-time highs, and isn't that much above where it entered April. This may give some investors pause because it isn't participating in the rally like its peers. On the flip side, some other investors may see it as a buying opportunity.

Image source: The Motley Fool.

Palantir's growth rate isn't to blame for its recent lackluster performance

At first glance, it may be odd to think that Palantir is off its all-time high. It has leading software in the AI realm, and is a go-to way for several companies to deploy agentic AI. Palantir has also been in the news a lot lately regarding its involvement with the U.S. military and intelligence agencies in the Iran war.

In its last quarter, Palantir delivered impressive 70% year-over-year revenue growth, and its net income margin was an outstanding 43%. So, Palantir is a rapidly growing and highly profitable stock in an emerging and important field. What more could investors want?

Well, there's a lot more to a stock than just those factors.

The biggest factor I have failed to mention is Palantir's valuation, and it's the primary reason the stock has remained below all-time highs despite solid results. Because Palantir is fully profitable, using the price-to-earnings ratio is appropriate for its stock.

PLTR PE Ratio data by YCharts

Although its valuation has come down, 231 times earnings is expensive no matter how you cut it, especially for a fully profitable business like Palantir. Even if you utilize 2026's projected earnings via the forward earnings ratio, its stock trades for 110 times forward earnings. That's a lot of expectations built into Palantir's stock price, and that's the primary reason why the stock hasn't rallied alongside its AI peers.

Palantir has several years' worth of rapid growth still baked into its stock price, which makes the market less eager to invest, especially when there are several options that are still trading for fairly cheap valuations despite having the same growth as Palantir.

Keithen Drury 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.