Palantir Technologies(NASDAQ:PLTR) has been one of the most popular artificial intelligence (AI) stocks since 2023. The share price has more than doubled every year since, and there are reasons to believe this will remain a popular choice into 2026.
Its strong performance has attracted enthusiastic investors, which has led to a rising valuation, making it a potentially overvalued stock. On the other hand, Palantir’s growth is accelerating, and because many companies are only beginning to integrate AI into their operations, there are opportunities for further outsized growth.
Given this conflicting view of the stock, what should potential investors think? Let’s see if there is an answer and explore reasons to buy and sell.
Image source: Getty Images.
Palantir makes AI-powered data analytics software. Although it was originally intended for government use, its applications eventually expanded to the commercial side and saw tremendous success as well. That expansion eventually led to the rollout of Palantir’s Artificial Intelligence Platform (AIP), which allows customers to integrate generative AI agents into their analytics and task those agents with processes that humans would normally perform. There are options for full automation, partial automation or assistance, making the software extremely flexible.
Revenue has exploded in recent quarters, with the most recent quarter being the best yet. Finding and investing in companies with accelerating growth is generally a winning investment strategy, and Palantir is among the best in any sector.
Data by YCharts; TTM = after 12 months; YoY = year over year.
It is rightly considered a very difficult task to increase a company’s revenue growth from 63%, but given the company’s track record, I wouldn’t be surprised if growth accelerates further in the fourth quarter. The broader economy is still in the early stages of AI adoption and companies are looking for the best way to deploy AI. Palantir’s product has a proven track record of delivering improved returns on investments for its clients, which is one of the reasons its growth is accelerating.
There’s also quite a long runway, as Palantir only has 530 commercial customers in the US so far. That bodes well, and if management can continue to accelerate its revenue growth into 2026, I think it will be a winning stock.
But with success comes the expectation of more success. And Palantir now has incredibly high expectations to live up to – at least from its investors. This could put them in trouble in 2026.
Palantir still manages to exceed both analyst and internal expectations almost every quarter. This performance ensures that the shares continue to rise. Once there is something wrong with management’s predictions (or even a match), it is likely that the price will drop due to the astronomical valuation.
Data by YCharts; PE = price to profit, PS = price to sales.
At 115 times revenue and 243 times forward earnings, it is one of the most expensive stocks on the market. For reference, Nvidiawhich is growing at a similar pace, trades at 24 times sales and 38 times forward earnings. Just adjusting Palantir’s profit margin to 38 would cause its stock price to plummet 84%. That’s a scary proposition, and one that’s unlikely to happen anytime soon (unless the company’s growth slows severely).
Instead, let’s focus on understanding how many years it would take for Palantir to grow to a valuation of 38 times forward earnings. If it maintains a compound annual growth rate of 60% — and Wall Street analysts expect 40% next year — while delivering a 40% profit margin (as it did in the fourth quarter), it would generate $25.6 billion in revenue and $10.2 billion in profits over four years. At a forward earnings multiple of 38, that would give the company a market capitalization of $388 billion.
The problem? It currently has a market capitalization of $420 billion. So there is at least four years of strong growth baked into the current share price. That’s a risk most investors shouldn’t take, and I think the case for selling far outweighs the case for buying right now.
If Palantir gets a reasonable valuation, I would like to buy it because it is an incredible company. However, the valuation has gotten out of hand, and I think investors should stay away from it.
Consider the following before purchasing shares in Palantir Technologies:
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Keithen Drury has positions at Nvidia. The Motley Fool holds and recommends positions in Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
1 Reason to Buy Palantir Stock Before 2026 and 1 Reason to Sell was originally published by The Motley Fool
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