Is Palantir Technologies Stock a Buy?

Key Points

• Palantir's revenue surged 48% year over year in Q2 2025, with U.S. commercial sales up 92%.

• The company trades at over 118x trailing revenue, a 500% premium over most other AI-oriented companies.

• Strong competitive moats exist, but extreme valuation creates significant downside risk.

• 10 stocks we like better than Palantir Technologies ›

Most investors hunting for artificial intelligence (AI) winners focus on the obvious suspects -- chip makers, cloud providers, and model builders. But what if the real money is being made by the companies that make AI actually useful?

Palantir Technologies (NASDAQ: PLTR) sits at the intersection of raw data and billion-dollar decisions. It turns information chaos into competitive advantage for the world's most critical organizations.

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What's the catch? You'll pay 118 times trailing-12-month sales for the privilege of owning it. That's a staggering premium when ServiceNow trades at 16x sales and Snowflake at 15x.

The pricing assumes near-perfect execution in a market that may not exist at the scale investors are betting on. The question isn't whether Palantir's technology works -- it clearly does. The question is whether any software company can justify a valuation that makes even the most expensive growth stocks look reasonable.

Image source: Getty Images.

The data orchestration advantage

While competitors build data lakes and monitoring dashboards, Palantir solves a fundamentally different problem: turning information chaos into decision advantage. The company's "ontology framework" doesn't just organize data -- it creates what Palantir calls a "read-write loop" where the system learns from every interaction, becoming smarter and more valuable over time.

The numbers validate this approach. Q2 2025 revenue hit $1 billion for the first time, representing 48% year-over-year growth -- Palantir's strongest showing in four years. The "Rule of 40" metric (revenue growth plus operating margins) reached 94%, a figure that would make any software CEO jealous. Most telling, U.S. commercial revenue exploded 93% year over year, proving the technology resonates far beyond government contracts.

Tampa General Hospital cut patient length of stay by 30% using Palantir's systems. The software was critical in accumulating intelligence that led to the capture of Osama bin Laden. When organizations stake human lives or billion-dollar decisions on your software, switching costs become almost insurmountable.

The switching-cost fortress that competitors can't breach

The average Palantir customer spends over $1 million quarterly -- not because they have to, but because the platform becomes indispensable. This isn't typical software-as-a-service adoption. Palantir implementations touch every aspect of operations, from supply-chain optimization to threat assessment.

The stickiness stems from Palantir's unique ability to handle any data type -- structured databases, satellite imagery, sensor readings, even analog sources, like temperature and pressure data. The software cleans this information, identifies hidden relationships, and deploys machine-learning algorithms that generate actionable insights.

Competitors like Amazon Web Services, Snowflake, and ServiceNow offer pieces of this puzzle, but none deliver the complete ontology framework that makes data truly intelligent. Palantir, in short, is creating an essential platform for many of its customers.

The valuation cliff

Here's where the investment thesis hits a wall. At roughly 118x trailing sales, Palantir trades at a staggering premium. Even assuming flawless execution and massive market expansion, the mathematics become daunting.

Morningstar analysts project 40% annual growth through 2030, requiring revenue to climb from $4.2 billion today to $21 billion by decade's end. GAAP operating margins reached 27% in Q2, with adjusted operating margins hitting 46%, moving Palantir closer to sustained profitability after years of operating losses.

Even with Morningstar's fair value estimate of $115, current prices around $160 suggest the market is pricing in outcomes beyond their bull-case scenario. This bull-case scenario -- capturing 3% of a $1.6 trillion total addressable market -- could justify $280 per share, but that assumes Salesforce-level dominance in a market that may not materialize at that scale.

Competition poses another threat. Big Tech incumbents like Alphabet and Microsoft have both the distribution and resources to develop rival frameworks, putting pressure on Palantir's ability to sustain outsized margins long term. The commoditization of large language models could further lower barriers to entry, allowing new competitors to challenge Palantir's current technological edge.

The speculation premium

An investment in Palantir requires believing two things simultaneously: One, that the AI revolution will unfold even more dramatically than current hype suggests, and two, that Palantir will capture an outsized share of the resulting value. Both assumptions could prove correct but are already embedded in today's stock price.

The bottom line: Palantir may indeed be the software backbone of the AI revolution, but at today's valuation, investors should treat it as a high-risk venture bet, not a core holding -- and be prepared for volatility as much as for upside.

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George Budwell has positions in Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, Palantir Technologies, ServiceNow, and Snowflake. The Motley Fool has a disclosure policy.