3 Reasons Palantir Stock Is Massively Overvalued

Key Points

• Palantir's revenue and margins are surging, and management lifted full-year guidance again.

• Other high-performing peers with strong growth are trading at significantly lower valuations than Palantir.

• Government exposure and sky-high expectations leave little room for disappointment.

• 10 stocks we like better than Palantir Technologies ›

Palantir Technologies (NASDAQ: PLTR), the artificial intelligence (AI) data platform specialist, recently posted a milestone quarter and raised its outlook again, helping drive a monster run in the shares this year.

The company's tools sit at the heart of high-stakes decisions for governments and enterprises, and demand has accelerated in recent quarters. But the stock has raced far ahead of even strong fundamentals. After a huge move in 2025, with the shares up roughly 140% year to date, Palantir's valuation looks stretched by almost any simple yardstick.

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Here are three ways to demonstrate that Palantir stock is overvalued at its current levels, even if the underlying business is performing exceptionally well.

Image source: Getty Images.

1. Momentum is real, expectations are extreme

Palantir's second-quarter results were exceptional. Revenue increased 48% year over year to approximately $1 billion, as both U.S. commercial and U.S. government businesses experienced strong growth. Adjusted operating income reached $464 million, representing a 46% margin, and adjusted free cash flow totaled $569 million, corresponding to a 57% margin.

Management guided for third-quarter revenue of roughly $1.08 billion and lifted full-year 2025 revenue guidance to about $4.14 billion, alongside higher targets for adjusted operating income and free cash flow.

"We are guiding to the highest sequential quarterly revenue growth in our company's history, representing 50% year-over-year growth," CEO Alex Karp said in the release.

The quality of the quarter was clear, but what investors are paying for that growth is the sticking point. Palantir's market value sits around $430 billion, implying a forward price-to-sales ratio near 100 based on the company's full-year revenue outlook. Even allowing for best-in-class margins, that's a staggering premium for a software business.

Also worth highlighting, U.S. government revenue was $426 million in the quarter -- over 40% of total revenue -- which concentrates results in a customer group that can be influenced by budget cycles, procurement timing, and policy priorities. That's not a flaw in the model, but it does make results more sensitive to factors outside Palantir's control at a time when the stock price assumes flawless execution.

2. Snowflake: Strong growth at a far lower valuation

Here's another way to show just how absurd the stock's valuation is. Compare it to competitor Snowflake (NYSE: SNOW).

The AI data cloud company reported second-quarter fiscal 2026 product revenue of about $1.09 billion, up 32% year over year, with a 125% net revenue retention rate and robust large-customer additions. The business is executing well in data infrastructure as enterprises modernize analytics and AI workloads.

Yet despite healthy momentum, Snowflake's entire market capitalization is roughly $78 billion -- less than one-fifth of Palantir's -- leaving its price-to-sales ratio around 19 using trailing revenue. Snowflake isn't cheap, but the comparison shows how far Palantir's valuation has run relative to large, fast-growing data platform peers serving similar budgets and use cases.

3. Datadog: Steady expansion with a more reasonable tag

Want one more example of a great software company trading at a far more reasonable valuation? Consider Datadog (NASDAQ: DDOG).

Datadog continues to expand across observability and cloud security. Second-quarter revenue rose 28% year over year to $827 million, and guidance put the third quarter above expectations. Trailing-12-month revenue is roughly $3 billion.

Datadog's market value is near $48 billion, implying a price-to-sales ratio of about 16 on trailing revenue -- hardly a bargain, but materially below Palantir's triple-digit forward multiple. If anything, this comparison reinforces that Palantir's stock is priced for perfection while other quality, fast-growing software names still trade at far more grounded levels.

Palantir's technology, margins, and backlog trends make for a compelling long-term story. However, the shares already embed assumptions of sustained 40%-plus growth, continued margin expansion, and uninterrupted government and commercial momentum. With a forward price-to-earnings ratio north of 200 and a free-cash-flow yield under 0.5% using management's own full-year guidance, the stock leaves little room for error if growth merely normalizes. For investors, patience seems like the smarter move. Waiting for a more attractive entry point could lead to a better long-term return profile.

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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 Datadog, Palantir Technologies, and Snowflake. The Motley Fool has a disclosure policy.