Palantir Was the Top-Performing Stock in the S&P 500 and Nasdaq-100 During the First Half of 2025. Here Is What History Says Will Happen Next.

Key Points

• Palantir stock returned 80% during the first half of 2025, absolutely dominating the S&P 500 and Nasdaq-100 indexes.

• While chasing Palantir's momentum is tempting right now, valuation analysis suggests the stock is too pricey.

• Palantir stock could be headed for a considerable reversion sooner than later -- making this a questionable time to buy the stock.

• 10 stocks we like better than Palantir Technologies ›

The stock market weathered quite a few storms during the first half of 2025. From the emergence of Chinese artificial intelligence (AI) start-up DeepSeek, President Donald Trump's new tariff policies, ambiguity over the Federal Reserve's policy decisions, and some economists calling for a recession, the common theme in the stock market during the first six months of the year boiled down to one thing: uncertainty.

Nevertheless, the capital markets managed to exhibit some resiliency. During the first half of the year, the S&P 500 and Nasdaq-100 indexes gained 5.5% and 7.9%, respectively. Considering these indexes had dropped around 20% at their low points earlier this year, investors should be quite happy with the rebound.

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One stock that managed to outmaneuver the various headwinds torturing the markets throughout the year, however, is data mining specialist Palantir Technologies (NASDAQ: PLTR). With shares soaring by 80% during the first six months of 2025, Palantir was the top-performing stock across both the S&P 500 and Nasdaq-100.

While chasing that momentum looks awfully tempting right now, history offers a clear indication of what direction Palantir stock could be headed next.

Palantir's growth is impressive, but ...

The chart below illustrates trends across Palantir's revenue growth and share price over the last three years. As the graph shows, its sales trajectory started to kick into a new gear in 2023. This is no coincidence: In April 2023, the company released its fourth major software suite -- the Palantir Artificial Intelligence Platform (AIP).

Data by YCharts.

Since AIP's debut, Palantir has experienced accelerated customer adoption across both the public and private sectors. In addition, this influx of new business has been incredibly profitable for Palantir as the company transitioned from a cash-burning operation to one featuring consistent positive net income and free cash flow. Lastly, many of Palantir's deals are multiyear contracts, providing the company with a high degree of visibility into future growth potential.

As you can see above, Palantir's share price also soared in tandem with its top line. Given these dynamics, it's not entirely surprising that investors have hopped on the Palantir train with much enthusiasm. Before chasing this growth stock, however, it's important to understand just how stretched Palantir's valuation has become.

Image source: Getty Images.

... valuation suggests the stock is overbought

The chart below benchmarks Palantir against a cohort of other leading software-as-a-service (SaaS) AI stocks on a price-to-sales (P/S) basis. With a P/S ratio of 107, Palantir is nearly three times more expensive than the next-closest comparable stock in the peer set below.

Data by YCharts.

Taking this one step further, the second chart (below) illustrates P/S multiples among leading internet stocks during the dot-com boom in the late 1990s.

Data by YCharts.

There are two important takeaways from this analysis.

First, Palantir's current P/S ratio is roughly three times the peak levels witnessed during the most euphoric days of the infamous dot-com bubble. Moreover, each company above experienced a normalization in their valuation multiples over time. This is quite normal as investors eventually focus more on earnings and cash flow and less so on revenue as the business matures.

Is Palantir stock a buy right now?

As I pointed out in some prior pieces, Wall Street is already preparing for a downside move in Palantir stock. Billionaire money manager Stanley Druckenmiller dumped his fund's stake in Palantir earlier this year. Meanwhile, longtime Palantir bull Cathie Wood of Ark Invest has also been trimming her exposure to the AI darling.

While the future is not guaranteed to mirror past trends, history strongly suggests that Palantir's valuation is in bubble territory and a considerable normalization is due. Said another way, expectations surrounding Palantir's growth are likely to increase with each passing earnings call. At some point, sentiment is going to be misaligned with reality, and a nasty sell-off could follow.

Investors should remain cautious right now and consider scooping up shares on future dips.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Amazon, Microsoft, and Palantir Technologies. The Motley Fool has positions in and recommends Amazon, Cisco Systems, Cloudflare, CrowdStrike, Datadog, Microsoft, MongoDB, Palantir Technologies, ServiceNow, and Snowflake. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.