3 Weaknesses to Weigh Before You Buy Palantir (PLTR) Stock

Palantir's (NASDAQ: PLTR) stock has delivered a 15-bagger gain since it went public via a direct listing in Sept. 2020. The AI-driven data mining and analytics company dazzled the market with its high double-digit sales growth, expanding margins, and soaring profits.

Palantir's future still looks bright. From 2025 to 2028, analysts expect its revenue and EPS to grow at CAGRs of 49% and 54%, respectively. That makes it one of the market's fastest-growing tech stocks, but investors should be wary of its three biggest weaknesses.

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1. Its controversial reputation

Palantir operates two main platforms: Gotham for its government clients and Foundry for its commercial clients. Most U.S. government agencies already use Gotham to aggregate data from disparate sources to predict trends, but some of its applications are controversial.

Immigration and Customs Enforcement (ICE) has used Gotham for over a decade to track individuals and support the agency's divisive deportation operations. Local police also use Gotham to predict crime patterns, sparking concerns of racial profiling, and it's used to plan military operations in Ukraine and the Middle East.

Palantir's critics claim its sales of powerful surveillance and data tools to government agencies violate privacy laws. That backlash could limit its overseas expansion, especially in privacy-oriented markets like Europe, as well as its domestic growth in blue states. It could also throttle the expansion of its commercial business, which is growing faster than its government business, as large companies reconsider their ties to a "mass surveillance" company.

2. Its high dependence on government contracts

Palantir is leveraging its battle-hardened reputation to attract more commercial customers, but it still generated over half of its revenue from government contracts in 2025. The recent geopolitical conflicts boosted its government revenue by 53% for the year, but those tailwinds could dissipate as the wars end and its top government clients rein in their spending.

3. Its valuation is too high

At $160, Palantir trades at 142 times this year's earnings. Its market cap of $370 billion values it at 51 times this year's sales. Those sky-high valuations could limit its upside this year, even if it continues to match analysts' expectations while expanding its two core businesses.

That might be why Palantir's insiders sold more than three times as many shares as they bought over the past three months. It's also increased its share count by 29% over the past five years, even as it reined in stock-based compensation to boost its profits.

Should you avoid Palantir's stock?

Palantir's business is firing on all cylinders, and it's dominating its high-growth data surveillance niche. However, investors shouldn't pay the wrong price for the right stock -- and they should be aware of this company's controversial reputation and customer concentration issues -- before pulling the trigger.

Leo Sun 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.