2 Growth Stocks I'd Buy -- but Only at Much Lower Prices

Despite the market tumbling lower so far in 2025, many growth stocks still seem to have stretched valuations. Two that I wouldn't touch with a 10-foot pool at their current prices are cybersecurity specialist CrowdStrike (NASDAQ: CRWD) and data analytics software company Palantir Technologies (NASDAQ: PLTR).

These are two great, well-managed companies. But, in my view, their stock prices simply bake in too much optimism. Or, put it another way, their current valuations demand near-perfect execution for the foreseeable future despite the fact that both face great risks due to the fast-changing and intensely competitive nature of their industries.

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CrowdStrike: Strong growth, but valuation concerns loom

CrowdStrike's results for its fourth quarter of fiscal 2025 showcased impressive growth, with revenue climbing 25% year over year to $1.06 billion. Adjusted earnings per share reached $1.03, up from $0.95 in the same quarter last year. Looking beneath the surface, the company's services are proving to be "sticky." More than two-thirds of its customers are paying for six or more modules.

These strong fourth-quarter results echo the company's consistent upward trajectory as CrowdStrike continually capitalizes on the vast opportunities in the fast-growing cybersecurity market.

But when CrowdStrike's profits are measured by generally accepted accounting principles (GAAP) standards, the bull case no longer looks quite as enticing. For its fourth quarter and full year of fiscal 2025, the cybersecurity specialist reported net losses of $92 million and $120.4 million, respectively. These losses speak to the intensely competitive nature of the cybersecurity industry. Consider that CrowdStrike had to spend $1.5 billion on sales and marketing in fiscal 2025 to generate about $4.0 billion of revenue. With the remaining operating expenses totaling about $1.6 billion and total cost of revenue coming in at about $1 billion, you can start to see how significant the capital outlay is to fuel strong growth.

Sure, over time, these expenses and costs will shrink as a percentage of revenue. However, it's difficult to predict how much operating leverage the company can achieve through scale since technology industries like cybersecurity change so often and so rapidly.

In addition to its high costs, a high valuation plagues the stock, too. Shares command a market capitalization of $97 billion despite CrowdStrike still struggling to be profitable. The stock is even expensive on a price-to-sales basis, with shares trading at a price-to-sales ratio of more than 24. This valuation multiple is higher than a lot of companies' price to earnings ratios.

Palantir: AI momentum meets high expectations

Data analytics and artificial intelligence specialist Palantir is growing even faster than CrowdStrike. Its fourth-quarter revenue increased 36% year over year. Palantir CEO Alexander Karp credits the company's "early insights surrounding the commoditization of large language models" as a critical element to the company's recent success.

While Palantir is further along than CrowdStrike when it comes to generating GAAP profits, with total net income in 2024 of 468 million (up from $217 million in 2023), the stock's valuation has just soared too far. Shares trade at 517 times earnings. Investors clearly expect explosive earnings growth for the foreseeable future.

Obviously, CrowdStrike and Palantir have demonstrated the type of business momentum that suggests earnings will grow at high rates in the years to come. But at these stocks' current prices, investors aren't leaving very much room for error. Investors should carefully consider the fast-changing nature of both of these companies' industries. They should ponder whether the earnings growth required to live up to these valuations is a probable outcome or just one of many possible outcomes.

Nothing is wrong with being a fan of these companies, their approach to business, and their growth trajectories while simultaneously exercising discipline regarding valuation when it comes to considering whether or not to invest. Both CrowdStrike and Palantir, as businesses, will likely do well over the long haul. Still, at this price, I do not believe they are good investments. This doesn't mean I don't think that there's a possibility that the stocks will perform well over the long term. I just don't think the odds are high.

I'd be more than happy to buy these stocks -- just not at their current prices.

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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike and Palantir Technologies. The Motley Fool has a disclosure policy.