Is Palantir's Valuation Finally Catching up to Its Growth?

Palantir (NASDAQ: PLTR), an AI-driven data mining and analytics company, began trading at $10 per share after going public via a direct listing on Sept. 30, 2020. It set a record high of $207.18 on Nov. 3, 2025, but it now trades at about $129. Does that pullback make Palantir's stock, which has been richly valued ever since its public debut, a more attractive investment?

How fast is Palantir growing?

Palantir operates two main platforms: Gotham for its government clients and Foundry for its commercial ones. Both platforms aggregate data from disparate sources to help their clients make faster data-driven decisions. Most U.S. government agencies use Gotham, while commercial giants like Amazon and Walmart use Foundry.

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From 2021 to 2025, Palantir's revenue grew at 30.5% CAGR from $1.54 billion to $4.48 billion. It also turned profitable in 2023, and its net income rose nearly eightfold from $210 million that year to $1.63 billion in 2025. Those soaring profits led to its inclusion in the S&P 500 in 2024.

Palantir's government business grew as military conflicts in Ukraine and the Middle East drove the U.S. government to ramp up the use of its data-gathering services. Its commercial business flourished as it gained even more enterprise customers in the U.S. market. It's also expanding its AI platform for creating custom apps within its ecosystem.

From 2025 to 2028, analysts expect Palantir's revenue and net income to grow at CAGRs of 53% and 65%, respectively. The expansion of its AI enterprise "bootcamps", which help its U.S. commercial customers build new AI applications in days, new government mega-contracts, and its expansion into the space economy market should drive that growth.

By replacing fragmented data silos with its unified platforms, Palantir locks in its customers and widens its moat against smaller data-mining companies. To expand its total addressable market beyond its core government and commercial customers, it's also rolling out cheaper, modular components for smaller businesses that can't afford a seven-figure contract.

Is Palantir becoming a bargain?

Palantir's business is firing on all cylinders, but much of that growth is baked into its valuation. When it hit its all-time high in Nov. 2025, it traded at 329 times the $0.63 per share in generally accepted accounting principles (GAAP) earnings per share (EPS) it would generate in 2025. Its market cap also peaked at $493.8 billion, or 110 times its 2025 sales of $4.48 billion.

At the time, many growth-oriented investors were willing to pay a premium for Palantir because they expected more rate cuts in 2026. But in the first half of the year, the Iran war and soaring inflation have forced the Fed to keep its benchmark rate unchanged. The Fed's recent decision to stop issuing forward guidance also implies interest rate hikes -- which could drive investors away from pricier growth stocks like Palantir -- are still on the table. Inflation and higher interest rates could also drive its commercial customers to rein in their near-term spending.

All of those headwinds caused Palantir's stock to retreat from its record high. But at $129 per share with a market cap of $301.4 billion, it still trades at 93 times this year's earnings and 39 times this year's sales. So while Palantir is cheaper than it was seven months ago, it's still an expensive hypergrowth stock.

How much upside potential does Palantir have?

If it matches analysts' earnings expectations through 2028 but trades at 50 times its current-year earnings in July 2028, its stock would only rise about 3% to $133 over the next two years. If it trades at a more generous 60 times earnings, its stock would rise 24% to $160.

Palantir's business is booming, but its stock's upside is limited. Its valuations are gradually catching up to its growth rates, but it will take at least two or three more years for its price-to-earnings and price-to-sales ratios to stabilize at more sustainable levels.

Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Palantir Technologies, and Walmart. The Motley Fool has a disclosure policy.