Is It Time for Palantir Investors to Panic?

Palantir (NASDAQ: PLTR) was once the poster child for artificial intelligence (AI) stocks. It was noted as one of the best AI software investments available, and received a premium valuation and high stock price as a result. Lately, it hasn't lived up to the hype. Palantir's stock is down nearly 40% from its all-time high, but there's something even more concerning.

Most of the market has rallied from its lows established a few weeks ago based on optimism that the conflict in Iran will wrap up. While Palantir initially recovered, it has heavily sold off over the past few days. This could be a sign that some of the market is moving on from Palantir, which could signal rocky days ahead for the stock.

This may cause some Palantir investors to panic, as the stock isn't panning out. But is this the right move? Let's take a look.

Image source: Getty Images.

Palantir is still delivering impressive results

We'll find out about how Palantir's Q1 2026 was at the beginning of May, but all signs indicate that it should be another positive quarter. Palantir's AI-powered data analytics software has been a hit among users and has led to massive revenue growth over the past few years. Palantir has customers in both government and commercial sectors, and the revenue split between the two is fairly balanced. Government clients were Palantir's original target, but commercial has been the stronger division since the AI boom began in 2023.

Overall, Palantir's revenue increased an impressive 70% year over year in Q4 2025 -- a pace that no investor should be disappointed in. Wall Street analysts expect another strong quarter in Q1, with revenue estimated to grow by 74%.

All of this seems to indicate impressive, sustained growth for Palantir. So why is the stock selling off?

Growth and market positioning are only a few factors that matter for a stock. Another key consideration is validation. Palantir's valuation has been incredibly high for some time, and investors may not be willing to give it the premium it once had.

PLTR PE Ratio (Forward) data by YCharts

Palantir's stock trades for an expensive 92 times forward earnings and 191 times trailing earnings. This is significant because the market has already priced in Palantir's earnings doubling this year.

However, for Palantir to get to a more reasonable valuation range of 30 to 50 times forward earnings, Palantir must double or triple its earnings after 2026. That's no easy task, and the market is finally waking up to the reality that Palantir's stock may be overvalued.

So, what should Palantir investors do? If you think the company can quadruple its earnings over the next five years or better, then I think you're fine to hold onto Palantir shares and weather the storm. However, if you don't think it can do that, now might be the time to exit and move into a different AI investment opportunity.

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.