Palantir Stock Is Up Nearly 50% to Start 2025. Can This Unstoppable AI Stock Keep It Up?

Source The Motley Fool

Few stocks have had the run that Palantir (NASDAQ: PLTR) has had over the past year or so. Since the beginning of 2024, Palantir's stock has risen around 550%. In 2025 alone, Palantir is up nearly 50%, boosted by a strong Q4 result that sent shares skyrocketing after the report was released.

That's an incredible performance, and investors want to know if they're too late to buy the stock. Let's see if there's still more fuel left in this rocket ship.

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Palantir's business is riding the AI investment wave

While Palantir's stock is well known, what they actually do is a bit more perplexing. In simple terms, Palantir's business is all about one thing: Data. Its platforms help its clients make important decisions by taking in all of the data a company has access to, processing it, and then giving its users real-time insights into the best decision possible. It uses artificial intelligence (AI) to process a lot of this data, making it a trendy investment as well.

Palantir started by marketing this software to governments worldwide. Eventually, the use of its software spread to the commercial market as well. This one-two punch of commercial and government clients has given Palantir a massive audience to market to, and it has positioned itself well with its latest product: Artificial Intelligence Platform (AIP).

AIP allows its users to integrate AI into the inner workings of a business rather than use it as a tool on the side. It also allows the creation of AI agents that can do work that humans used to do. Palantir's management stated that AIP continues to be the driving force behind new customer acquisition and has helped propel its stock to new heights.

Palantir posted an incredible Q4

Palantir's financials have also improved over its massive run-up. In Q4, Palantir's revenue grew 36% year over year to $828 million. This blew away management's guidance for Q4, as they only projected $767 million in revenue. Unlike some AI companies, it's also profitable, although its profit margin slipped significantly in Q4 thanks to rapidly rising operating expenses.

PLTR Profit Margin (Quarterly) Chart

PLTR Profit Margin (Quarterly) data by YCharts

Still, Palantir is a growth machine, and management projects that Q1 revenue will be about $860 million, indicating 36% growth. Palantir's management has a history of under guiding, so investors can likely expect a higher revenue growth rate than that. For 2025, management expects $3.75 billion in revenue, or about 31% growth.

Those are impressive figures, and it's no wonder the stock went soaring after reporting blowout Q4 earnings.

However, investors must understand a key point about Palantir's stock, and it could be the thing that sinks the ship.

Palantir's stock price doesn't support its fundamentals

The market isn't blind to Palantir's success, and the stock has been bid up. While we could examine its price-to-earnings (P/E) ratio since it is profitable, that's not a great assessment of the stock because it hasn't reached peak profitability.

Instead, let's value the stock based on its potential.

While Palantir's business reached 20% profit margins in a few quarters during 2024, the best software companies have a profit margin of around 30%. So we'll use that as its long-term target. Furthermore, let's assume that Palantir's 36% growth rate will accelerate to 40%. Additionally, let's say it can grow at that pace of 40% for five years.

Those are extremely bullish predictions, but if they come true, Palantir's stock will still be incredibly expensive. If those projections come true, Palantir will produce over $15 billion in revenue and $4.6 billion in profits. However, with the company already valued at $250 billion, it would trade at 55 times projected 2025 earnings.

Bear in mind that those projections only come true if the stock price doesn't rise from today's levels. There's a lot of growth baked into the stock price, and there's a lot of improbability baked into those assumptions as well. Sustained 40% revenue growth over a five-year period is incredibly rare, but that's basically what the stock price assumes.

One of the hottest AI stocks on the market, Nvidia, trades for 51 times trailing earnings and is still growing its revenue faster than Palantir.

The market has bid up Palantir's stock to unreasonable levels, and investors need to take note of that. Palantir could have an incredibly successful five years as a business, but the stock would still be expensive by the end of the run. As a result, I think investors need to take some profits, as this stock could come crashing down to earth any day. Or, it could continue rising in the AI-induced investing mania.

It's hard to tell what will happen or when, but Palantir's stock is overvalued, and investors need to stay aware of that.

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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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