Prediction: Palantir Stock Is Going to Plunge on Aug. 4

Over the last four years, no trend has been more impactful on Wall Street than the evolution of artificial intelligence (AI). This multitrillion-dollar addressable opportunity has sent AI infrastructure and applications stocks to the heavens.

But a strong case can be made that Nvidia isn't the face of the AI revolution any longer. Rather, that honor now falls to AI-driven software-as-a-service (SaaS) provider Palantir Technologies (NASDAQ: PLTR).

Palantir is set to report its second-quarter operating results after the closing bell on Monday, Aug. 3. While CEO Alex Karp's company has made a habit of blowing past Wall Street's consensus sales and profit forecasts, this may not be enough to overcome historical precedent this earnings season.

Image source: Getty Images.

Expect Palantir to sail past Wall Street's consensus

If the past offers any indication of what's to come, Palantir should have no trouble surpassing headline expectations this coming Monday. Karp's company has topped profit expectations in each of the last 11 quarters, while making it a habit of raising full-year sales guidance.

The roughly two dozen Wall Street analysts who've weighed in on Palantir anticipate $1.81 billion in June-quarter sales, up 81% from the comparable quarter in 2025, and earnings per share of $0.35, a 119% increase from last year.

Palantir has benefited immensely from the Trump administration's robust defense spending and desire to protect America's interests. The government contracts Karp's company locks in are commonly spread over several years, resulting in predictable cash flow and sustained double-digit sales growth.

Furthermore, Palantir's stock has been supported by the company's sustainable moat. The AI-powered Gotham SaaS platform, tasked with planning and overseeing U.S. military operations, has no large-scale competitor.

But just because Palantir is expected to dazzle with its second-quarter headline numbers, it doesn't mean the company's shares will benefit.

Image source: Getty Images.

Historical precedent is a serious problem for Palantir

Although history can't guarantee what's to come, historical precedent has a knack for forecasting the future more often than not on Wall Street.

For instance, history shows that companies at the forefront of a major technological innovation, such as AI, haven't sustained price-to-sales (P/S) ratios above 30 for any extended period. Palantir entered 2026 with a P/S ratio of more than 100! Even though its rapid revenue growth is lowering its trailing 12-month P/S ratio over time, its current P/S ratio of 61 is still firmly in unsustainable/bubble territory.

PLTR PS Ratio data by YCharts.

To build on this point, every game-changing technology since the mid-1990s has navigated through an early stage bubble-bursting event. The reason these bubbles form is that investors consistently overestimate the pace of adoption and/or optimization of new technologies -- and AI is unlikely to be an exception to this unwritten rule.

Palantir's shares fell 7% in May after its first-quarter operating results failed to live up to investors' unrealistic expectations. Expect an encore performance on Aug. 4, with no earnings beat sufficient to justify its current valuation.

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