Why Isn't Palantir's Stock Taking Off After Another Strong Quarter?

Palantir Technologies (NASDAQ: PLTR) recently delivered another strong earnings performance. Its growth rate accelerated, and it beat analyst expectations on revenue (and met on profit). Despite this, the stock isn't soaring to new heights. Instead, it was falling in the days after the earnings release.

What's wrong with Palantir's stock? Could the post-earnings drop mean trouble for investors hoping its impressive rally continues? Year to date, the share price of Palantir is up more than 71%. However, recent trading suggests the market is having second thoughts about the stock.

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Not enough of a beat for Wall Street?

Last week, Palantir reported first-quarter earnings for 2025 that suggested the business continues to deliver strong growth. One example is that quarterly sales hit a new record of $884 million. CEO Alex Karp says the business is "in the middle of a tectonic shift in the adoption of our software."

But while the year-over-year growth rate of 39% was impressive, the data analytics company barely beat Wall Street revenue expectations of $863 million. Its adjusted earnings per share of $0.13 merely met expectations. While the bottom line beat wasn't there, the company did grow at a feverish, accelerating pace -- the fastest one it has been on since 2021.

Data by YCharts.

The stock price reaction was mostly because the market's expectations had risen quite high, and shares of Palantir ended up falling after the news. Basically, the reason it isn't taking off is because of its inflated valuation and the sky-high expectations that come with it.

Palantir's valuation remains obscene

There was a bit of a crash in Palantir stock earlier this year as investors grew concerned about tariffs and the possibility of a recession. And while stocks have mostly recovered (at least for the time being) on news of tariff tensions somewhat easing, that panic may have triggered a bit more apprehension for some investors, especially when it comes to a highly expensive stock such as Palantir. This isn't a stock trading at a small premium, after all; its gargantuan price-to-earnings ratio of 512 has some analysts calling it a meme stock despite its growth and consistent profitability.

Data by YCharts.

While Palantir's business isn't risky, the danger comes from its valuation. Tthe stock's value in relation to earnings is massive. Its P/E has been at or above 200 since October 2024. Occasionally, growth stocks can surge to high valuations when they have a bad quarter. But with Palantir, investors have routinely paid a massive premium for the business.

With some investors potentially spooked about the troubling start for the market this year, that may have caused a bit more hesitance of late, especially when Palantir didn't deliver blowout earnings numbers as it has in the past. They were good, but perhaps not spectacular and impressive enough to convince investors that the company is unstoppable.

Investors should think twice about owning Palantir

Palantir's business looks strong, but at nearly $280 billion in market cap, it's valued far higher than many other, more established businesses. Paying for future growth is one thing, but paying 500 times earnings is quite another. Palantir's valuation has been out of whack for a while, and it may be overdue for a reckoning. This is a tech stock you should tread carefully with as it is highly speculative and its fundamentals simply don't support its egregious valuation.

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David Jagielski 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.