Should You Buy Palantir Stock Before Feb. 3?

Source The Motley Fool

Palantir Technologies (NASDAQ: PLTR) was one of the top artificial intelligence (AI) stocks of 2024. It rose 340% in 2024 but has been fairly flat in 2025. Palantir was such a dominant stock in 2024 that many investors are curious if it can have a similar run in 2025. After all, Nvidia (NASDAQ: NVDA) taught many investors that a multiyear rise is entirely possible.

On Feb. 3, Palantir reports fourth-quarter earnings, which will provide an important update on the current state of the business and outline what management expects for 2025. This important date could send the stock soaring or give investors reasons to sell.

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Palantir saw strong U.S. growth in 2024

Palantir's rise is directly tied to the success of its AI platform. For a long time, Palantir has been providing AI software that aids in real-time decision-making. Originally, its software was intended for government use, but it also found success in the commercial sector. Government revenue is still Palantir's largest segment, making up 56% of revenue.

The latest growth wave Palantir experienced is primarily due to its Artificial Intelligence Platform (AIP) product. Palantir considered AIP to be the next phase of AI implementation. AIP gives its users tools to integrate AI models directly into a business's inner workings and set up AI agents to perform tasks that humans would normally have to do.

AIP saw the largest adoption in the U.S. commercial sector, which grew massively in 2024. In Q3 alone, U.S. commercial revenue was up 54%. Management expects AIP's success to eventually spread to government divisions and internationally, boosting those revenue growth rates as well.

Overall, revenue grew 30% year over year to $726 million, and management gave guidance for Q4's revenue to be between $767 million and $771 million, indicating a growth rate of 27%. While growth is projected to slow on a quarter-over-quarter basis, Palantir's management has a track record of beating projections on a regular basis.

However, Q4 results will likely be overlooked in favor of 2025 projections, and what happens then is anyone's guess.

Palantir needs to grow at a faster rate than it is to justify its stock price

While management hasn't given any indications about what to expect from 2025, Wall Street analysts project revenue growth to slow to 25%. That's a problem, as Palantir's stock price indicates that it needs far more growth to support it.

Palantir's stock is one of the most expensive in the market, trading for 365 times trailing earnings and 127 times forward earnings.

PLTR PE Ratio Chart

PLTR PE Ratio data by YCharts

Palantir's profit margin reached 20% for two consecutive quarters, so an earnings-based valuation measure is the best way to perform this analysis. Those levels are incredibly high, and few companies have sustainably traded at these valuations.

Take Nvidia, for example. Since 2023, the stock never traded for more than 247 times earnings, but spent most of its time trading between 60 and 80 times earnings (it only traded that high in early 2023 when weak quarters from 2022 were included in the trailing-12-month earnings total). During that period, Nvidia was tripling its revenue each quarter, not growing at a 30% pace like Palantir is.

This showcases how expensive Palantir's stock is, but there's an even more telling analysis.

Let's say Palantir's growth rate defies what Wall Street thinks it will do and grows at a 35% year-over-year pace for the next five years while maintaining its 20% profit margin. If it does that, five years from now, it will trade at 70 times trailing earnings. That's more than five years of growth baked into the stock price at today's valuation, which is a huge problem for future returns.

Unless Palantir's management gives an unbelievable projection of 40% to 50% revenue growth for 2025, its stock is likely highly overvalued. As a result, I don't think investors should buy Palantir stock before Feb. 3; instead, they should consider selling some.

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*Stock Advisor returns as of January 21, 2025

Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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