Palantir Is 1 of the Fastest-Growing AI Companies, but Does That Make It a Buy?

Palantir Technologies (NASDAQ: PLTR) gained mainstream recognition from investors after gaining more than 2,000% from its 2023 lows. The company's fundamentals point to prolonged hypergrowth, but a high valuation has concerned investors.

It's the latest case of a great company at a bad price, which is why the stock is down roughly 20% year to date. However, its fundamental strength is too good to ignore, and the correction warrants a more attractive price point than Palantir had just a few months ago.

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Diving into Palantir's fundamentals

Palantir generates annual recurring revenue from companies and governments that use its software. The company's Artificial Intelligence Platform (AIP) can quickly turn datasets into AI models that help businesses run more smoothly. Furthermore, businesses can view and act on significant amounts of data in real time using Palantir's technology.

Once companies and governments adopt it, they become very comfortable with Palantir's centralized software, giving Palantir significant pricing power. It explains why Palantir has achieved an annualized revenue growth rate of 32.6% over the past five years.

That annualized growth rate doesn't even do Palantir justice. The AI platform delivered 85% year-over-year revenue growth in Q1, with its U.S. commercial segment more than doubling year over year. Palantir closed 206 deals that exceeded $1 million and 47 deals of at least $10 million.

That growth also comes with high profits. Profits more than quadrupled year over year, resulting in a net profit margin above 50%.

The valuation problem

Palantir's current valuation is the only thing weighing on the stock. Revenue growth came in strong, and Palantir told investors to expect 71% growth throughout 2026. That revenue guidance was a 10-point increase from the company's Q4 2025 guidance.

However, growth stocks can only go as high as people are willing to pay. A 93 forward P/E ratio, which factors in 2026 growth rates, is a bit high for many investors. Palantir's valuation has become more attractive in recent quarters, driven by strong fundamentals. For instance, Palantir had a forward P/E ratio of 250 as of June 30, 2025.

Net income growth will be slower in future quarters, simply because Palantir can't quadruple its profits. For instance, the company delivered $1.63 billion in Q1 revenue and $870.5 million in net profits.

Starting in 2027, Palantir's profits will grow at a rate similar to its revenue. The company's net income should continue to grow, but a lower growth rate than in previous quarters could put more focus on the valuation.

Should you buy Palantir stock?

Palantir is in the right industry at the right time. Its software is irreplaceable for the businesses and governments that use it. Revenue and net income growth continue to impress investors, and recent guidance suggests more of the same.

Palantir's primary weakness is its valuation. That problem should fix itself over time as Palantir continues to gain market share, making it an AI stock to consider if you have a multiyear window.

However, Palantir is a bit risky to hold if you have to sell your shares within one to two years to cover living expenses or pay for a big purchase, such as a car or a down payment.

Furthermore, Palantir must maintain high growth rates to sustain its current valuation. Palantir generated $3.32 billion in revenue in full-year 2025, and assuming the company's 71% growth rate holds, investors can expect approximately $5.68 billion in full-year 2025 revenue. That revenue comes up against a market cap above $300 billion.

Palantir's valuation leaves little room for error. Investors who are willing to look around may find a stock with solid growth prospects and a better valuation. However, investors who have long-term horizons may still benefit from buying Palantir stock.

Marc Guberti 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.