Prediction: Palantir Stock Is Going to Plunge on May 5

There's arguably nothing that excites Wall Street and investors more than earnings season. Although geopolitical events, economic reports, and emotions can push and pull on the benchmark S&P 500 (SNPINDEX: ^GSPC), corporate operating results cut through this subjectivity and provide investors with tangible reasons to be optimistic or pessimistic.

After the closing bell tolls on May 4, artificial intelligence (AI)-driven data-mining specialist Palantir Technologies (NASDAQ: PLTR) will lift the hood on its first-quarter operating results. Next to AI titans like Nvidia and Taiwan Semiconductor Manufacturing, there might not be a more important earnings report for Wall Street and the AI trade than Palantir.

Image source: Getty Images.

While Palantir has made a habit of blowing past the consensus sales and profit forecasts of analysts, this AI darling may have bit off more than it can chew this earnings season.

Palantir's headline numbers are likely to impress

Looking in the rearview mirror, Palantir has managed to leap beyond analysts' earnings per share (EPS) consensus for 10 consecutive quarters. Additionally, the company has been increasing its full-year sales forecast on a near-quarterly basis. Based solely on these headline numbers, there's been a lot to like.

For the March-ended quarter, Palantir is expected to have generated $1.54 billion in sales, up 74% from the comparable quarter last year, and $0.28 in EPS, which is more than double what it generated per share in the first quarter of 2025.

Palantir's outsize growth has been primarily spurred by its AI-fueled software-as-a-service platform, Gotham. This is the segment that assists the U.S. federal government and its allies with military mission planning and execution, as well as data analysis. Palantir's multiyear contracts with the U.S. government, coupled with a lack of competitors at scale, are powering sustained double-digit growth.

But none of this may be enough when the opening bell rings on May 5.

Palantir's valuation has become impossible to justify

Although history can't guarantee the future, it tends to rhyme more often than not on Wall Street and is an objective teacher for those willing to listen. History has made clear that Palantir's valuation -- specifically its price-to-sales (P/S) ratio -- is an insurmountable headwind.

Over the last three decades, P/S ratios above 30 for companies at the forefront of game-changing innovations have spelled trouble. This arbitrary line in the sand has alerted investors to bubbles and identified companies with unsustainable valuations.

PLTR PS Ratio data by YCharts.

Palantir entered 2026 with a trailing 12-month P/S ratio above 100! No industry leader has ever been able to sustain a P/S ratio above 30, let alone three times this level. Even though Palantir's P/S ratio should decline over time as sales rise, no revenue beat-and-raise will be anywhere near enough to justify a P/S ratio of 70 or above.

Following its previous four quarterly reports, Palantir shares have gained up to 8% and lost as much as 12%. Given that big moves are commonplace following Palantir's earnings, investors should prepare for a bumpy ride on May 5.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.