Is Palantir Stock Overvalued?

Few stocks in the market have had as good a three-year run as Palantir Technologies (NASDAQ: PLTR). Its stock has risen an impressive 2,100% since the start of 2023, but that figure was as high as 3,100% a few months ago before the stock sold off. Palantir's stock is now 30% down from its all-time high, vindicating projections (like mine) that it was overvalued and due for a sell-off.

Now that that's here, investors need to reevaluate Palantir's stock and determine whether it's still overvalued or has sold off enough to warrant buying shares. Let's take a look at Palantir's stock and see if it's overvalued now or still has more room to decline before it enters a buying zone.

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Palantir's AI platform is growing like a weed

Palantir makes artificial intelligence (AI)-powered data analytics software that helps users make the most informed decisions possible. This software was originally developed for use by the government, specifically in intelligence and defense sectors, but eventually expanded to other areas.

Ultimately, a commercial use case was also discovered, and Palantir now serves two client bases. Its product has skyrocketed in popularity and has emerged as one of the go-to ways to improve a business with AI. Palantir also has several generative AI tools that can be used to automate or partially automate processes, further improving the effectiveness of each employee who utilizes them. Few AI stocks have seen their revenue grow as Palantir's has, and it's the reason why the stock has performed so well.

In Q4, Palantir crushed expectations, delivering $1.41 billion in revenue while it only guided for $1.3 billion. Palantir's management has a long history of underguiding and overperforming, which could be huge news for investors if that trend holds for 2026.

For 2026, Palantir expects $7.19 billion in revenue, indicating about 60% growth. That's rapid growth and will likely place it among the fastest-growing AI stocks on the market. Furthermore, Palantir is doing so profitably, as it delivered an impressive 43% profit margin in Q4.

Palantir is truly operating at a high level and expects to do so again in 2026, but has the stock declined enough to warrant an investment?

Palantir still has years' worth of growth baked into the stock price

My previous analysis of Palantir's stock showcased that there were several years' worth of growth baked into Palantir's stock price, but that was before a 30% decline and strong guidance for 2026. If Palantir hits its $7.19 billion mark and continues its 43% profit margin, that means Palantir will generate $3.1 billion in net income during 2026. At Palantir's current market cap of $341 billion, that would give the stock a price-to-earnings ratio of 110. That's still incredibly expensive, and means there are still several years' worth of strong growth priced in.

But just how many are there?

I think a reasonable, long-term valuation expectation for Palantir is about 50 times earnings. At today's current market cap, that would require $6.82 billion in profits and nearly $16 billion in revenue. At Palantir's projected 60% growth rate, that would take nearly three years to accomplish.

With the unknown future of AI, this could be a price well worth paying, or it could still be a trap. However, we're moving in the right direction, as this figure used to have more than five years of growth baked into the stock price.

I'm not a Palantir buyer quite yet, but if it declines another 10% or 20%, I'll be among the first to scoop up shares.

Keithen Drury 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.