Down 0.5% in 2026, Is Palantir Stock a Buy?

Shares of Palantir Technologies (NASDAQ: PLTR) are down 0.5% year-to-date, underperforming the Nasdaq Composite's roughly 14.4% gain. Much of that underperformance reflects the stock's lofty valuation coming into the year -- not a collapse in demand. In fact, Palantir continues to see explosive growth for its artificial intelligence (AI) platform.

Revenue growth has accelerated in every quarter since mid-2023, and the most recent period showed 93% year-over-year growth. With the stock rebounding after strong earnings, the question is whether it is still worth buying.

Image source: Palantir Technologies.

Palantir's security edge is driving outsize growth

Investors are bidding up shares after earnings because Palantir is demonstrating that it could become one of the world's leading software companies with high profit margins. Palantir credited the quarter's growth to its focus on security and the protection of customer data. As businesses feed more data into AI models, retaining control of sensitive information has become a core requirement. CEO Alex Karp summed it up this way: "Their competitive advantage should never become the training data for future models."

Security has become a key selling point for Palantir's AI tools. In the second quarter, U.S. commercial revenue jumped 149% year over year, while government revenue still grew by a rapid 90%. That momentum shows major U.S. companies are coming to Palantir in a mass wave.

Large enterprises and government agencies trust Palantir with their most sensitive data -- and are willing to pay for it. Palantir posted a 55% net profit margin in the quarter and, over the last year, generated more than $3 billion in net income on about $6.2 billion in revenue.

Competition and valuation still weigh on the stock

Even though other big players like Databricks and Snowflake offer AI-driven data tools, they are not the same as Palantir's. Beyond security, Palantir differentiates itself by building a digital representation of an organization's operations, with engineers working closely alongside customers to solve complex, real-world problems. That hands-on approach is a big reason governments rely on Palantir for mission-critical defense programs.

The bigger issue is valuation. Palantir trades at roughly 50 times estimated 2026 revenue and about 108 times forward earnings. Even if revenue and earnings doubled over the next year, the stock would still carry a sizable premium over most growth peers.

To put that in context, analysts project revenue could exceed $17 billion by 2029, up from $4.4 billion in 2025. At today's roughly $412 billion market cap, that's about 24 times those 2029 estimates -- which is a big premium to pay for results three years in advance.

Buying a small position to start might be the right move for investors who believe Palantir's competitive edge and pricing power will compound into monster long-term growth. But investors should be aware of the valuation risk implied in the share price. If Palantir's growth were to materially slow, it could lead to further underperformance.

John Ballard has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies and Snowflake. The Motley Fool has a disclosure policy.