After Palantir's 18% Drop, the Stock Is Trading Near Wall Street's Price Targets. Time to Buy?

Key Points

• Palantir is generating double-digit growth in its commercial and government businesses.

• The stock has become more and more expensive -- until its recent pullback.

• 10 stocks we like better than Palantir Technologies ›

Some investors and analysts alike have expressed mixed feelings about Palantir Technologies (NASDAQ: PLTR) over the past couple of years. Yes, demand for the company's software has been booming and translating into fantastic earnings growth. But this also has resulted in a soaring valuation as other investors piled into the stock. Palantir has traded for as much as 289 times forward earnings estimates in recent times, a level that many consider exorbitant.

But in recent weeks, Palantir stock has pulled back, dropping as much as 18% since early August. And this movement has pushed the stock price to a few dollars away from Wall Street's average 12-month price forecast. Is it finally time to buy this high-growth player? Let's find out.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Image source: Getty Images.

Why has Palantir soared?

So, first, let's consider why Palantir, up a mind-blowing 1,900% over the past three years, has climbed so much in the first place. It's important to note that, though Palantir has existed for more than 20 years, the company only launched an initial public offering five years ago. The company took its time refining its products and strategy and working to move closer to profitability before deciding on such an operation.

And though Palantir stock advanced in the months following its IPO, the stock truly started to pick up major momentum about two years ago. This coincides with the launch of the company's Artificial Intelligence Platform (AIP), software that, integrating the power of AI, helps customers bring together all of their disparate data and use it to supercharge decision-making and growth.

Palantir, in the past, was most associated with government contracts, but the launch of AIP boosted the commercial business -- and now both government and commercial revenues are soaring in the double digits quarter after quarter. Uses for AIP are vast, from the military applying it to real-time decision making on the battlefield to commercial customer United Airlines using it to predict maintenance issues.

All of this has helped Palantir reach profitability and grow the commercial business from a handful of customers just four years ago to 485 today.

This may be the beginning...

Chief executive Alex Karp in recent quarters has said growth is in its early stages, and in the latest letter to shareholders wrote, "This is still only the beginning of something much larger." Considering the AI market is set to grow from billions of dollars today to trillions of dollars in just a few years, according to analysts' forecasts, this may be very true.

Palantir's AIP offers customers an opportunity to quickly and easily apply AI to their operations, and this sort of service already is showing itself to be in high demand -- as need for AI grows, this could continue.

As mentioned above, the one problem that Palantir has faced over the past year or so is valuation. As some investors looked at the company's booming sales and stellar ability to balance growth with profitability, they rushed to get in on this AI player. And that pushed many Wall Street analysts to warn investors about buying the stock at current valuations.

Now, though, following recent declines, the stock has been trading for less than $160. The average Wall Street share price target is about $151. Since Palantir has neared this average estimate, some investors may view the stock as more reasonably priced than it was in the past. The stock traded for more than $181 at its high in August.

And this also has lowered valuation, with the stock now trading at 243x forward earnings estimates, down from 289x just a month ago.

PLTR PE Ratio (Forward) data by YCharts

Is Palantir a buy?

Does this mean that now, on the dip, is a good time to buy Palantir? It's important to note that, if you're a value investor, you'll still find Palantir expensive at today's valuation. But it's also important to say that it's hard to apply such valuation measures to high growth tech stocks -- since these measures reflect earnings estimates in the near term but don't include the potential a few years down the road.

Meanwhile, demand for Palantir's software is going strong and future prospects look bright so there's reason to be confident about the company's future. And Palantir's recent drop, bringing it near Wall Street's average 12-month price forecast, shows the stock may be approaching a level that could appeal to investors -- especially those who thought the price was too high in the past.

All of this means, if you're a growth investor looking for a potential long-term AI winner, it's a great idea to buy Palantir now on the dip.

Should you invest $1,000 in Palantir Technologies right now?

Before you buy stock in Palantir Technologies, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Palantir Technologies wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $671,288!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,031,659!*

Now, it’s worth noting Stock Advisor’s total average return is 1,056% — a market-crushing outperformance compared to 185% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of September 8, 2025

Adria Cimino 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.