Palantir Just Hit a Record High. What's the Smart Move Now?

Key Points

• The tech company's revenue growth rate accelerated in Q1.

• Palantir's commercial business in the U.S. is seeing explosive growth.

• The stock's wild valuation leaves no room for error.

• 10 stocks we like better than Palantir Technologies ›

Data and artificial intelligence company Palantir (NASDAQ: PLTR) seemed to defy gravity in 2024. Shares more than quadrupled, rising a staggering 340%. With such an incredible rise, you'd be forgiven for guessing that the stock would cool off in 2025. But, so far, the opposite is true. Shares are heating up, rising by more than 105% year to date as of this writing. This has given the tech stock a gain of approximately 800% since the start of 2024.

With shares trading at record highs. What should investors do? Does it make sense to buy more shares and hope the momentum continues? Or should investors take a more cautious approach and hold or even sell the stock?

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Image source: Getty Images.

Soaring sales

One thing Palantir really has going for it is its top-line growth. The tech company posted first-quarter revenue of $884 million, up 39% year over year. Highlighting the company's momentum, this was an acceleration from 36% year-over-year growth in the previous quarter.

Fueling Palantir's first quarter of 2025 was 55% year-over-year growth in U.S. revenue. Accounting for $628 million of the quarter's total revenue, the U.S. market is vital for Palantir. Supporting this market was a 71% year-over-year increase in commercial revenue and a 45% jump in government revenue.

Zooming out to all of the company's markets, Palantir said in its first-quarter update that it closed 139 deals worth $1 million or greater, 51 deals worth at least $5 million, and 31 deals worth $10 million or more.

With these strong results now behind it, management had the confidence to raise full-year revenue guidance. The company said it now expects 2025 revenue to be between $3.890 billion and $3.902 billion. This compares to revenue of about $2.9 billion in 2024. The midpoint of management's 2025 revenue guidance range, therefore, assumes about 36% growth.

This impressive top-line growth is bolstering profits. Palantir's first-quarter net income was approximately $214 million, more than double its profit of about $106 million in the year-ago quarter.

Comments from Palantir co-founder and CEO Alexander Karp in the company's first-quarter earnings call suggest he believes the company is still in its early innings.

"We are in the middle of a tectonic shift in the adoption of our software, particularly in the U.S..." Karp noted. "We are delivering the operating system for the modern enterprise in the era of AI."

A valuation problem

While Palantir's top-line momentum is certainly impressive, there's one big problem for investors: The market seems to have already priced in more rapid growth for years to come.

Today, Palantir's market capitalization sits at about $365 billion -- more than 93 times the high end of management's guidance range for full-year 2025 revenue. Using the company's trailing-12-month sales, Palantir currently has a price-to-sales ratio of 123. This would be a high figure even for a price-to-earnings ratio.

And what is Palantir's price-to-earnings ratio? It's 672. Yes, you heard that right.

It's safe to say that investors have already bid up the stock to a level that prices in the most optimistic assumptions for this company.

So, what should investors do? The decision is a personal one -- one that you'll have to make on your own. However, if I owned the stock, I'd sell. And for those who don't own shares, I'd avoid them like the plague at this price. Of course, I could be wrong. It's always possible that Palantir exceeds even my most bullish assumptions. Still, I believe there are likely better places with less risk and greater upside potential for investors to allocate their capital.

Palantir is a great company. But expectations are simply too high. Investors would be wise to wait to see if they can buy shares at a better entry price.

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Daniel Sparks and his clients have 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.