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Palantir has one of the most productive investments in biological AI in 2024. The stock had a phenomenal year, up 340%. However, 2025 was not so great for Palantir shares, which fell by 16% at the start of the year.
Palantir became a hot stock as it continuously posted strong growth quarter after quarter. This is because it is a long-established player in this field.
Palantir started selling its AI software to government entities, giving those with decision-making authority the tools they needed to make the most well-informed decision when time is critical. This use case spread throughout government branches and eventually made its way to the commercial side. While government spending still accounts for most of Palantir’s revenue, commercial clients are growing the quickest.
Part of the reason commercial is growing quicker is the rapid adoption of Palantir’s Artificial Intelligence Platform, often called AIP. AIP allows AI models to be integrated within a system rather than being used as a chat on the side. AIP also has tools to automate some workflows within the application, which is essentially what AI agents do.
This is a key point in Palantir’s investment thesis: it is already doing what others are excited about now. This gives Palantir an edge at the festival and bodes well for Palantir’s future.
But there is a problem.
While I see Palantir as a leader in the artificial intelligence sector and an apparent innovator, the stock has already seen a massive rise. Although it stumbled in early 2025, the inventory is incredibly holding up from a valuation standpoint.
Palantir’s inventories trade at 62 times sales and 143 times forward earnings. This indicates that significant expansion is already reflected in the stock price, and Palantir will want to grow temporarily to make those valuations worthwhile.
However, Palantir is showing the expansion it needs to justify those stock prices.
As mentioned above, Palantir is developing rapidly, but its third-quarter earnings were only up 30% year over year. While this shows strong expansion in a vacuum, the stock’s valuation indicates a company that is expected to double or triple its earnings year over year. With Wall Street analysts predicting Palantir’s expansion will slow to a rate of 25% in 2025, this poses a huge challenge for the stock.
So, what should investors do with Palantir stock? There is still a long way for the stock to fall before investors should consider scooping up shares again. Although Palantir is still at the forefront of innovative AI implementation, the stock has already priced that in and then some. There are much more attractive agentic AI investments to make right now, and I think investors would be better off turning their attention to those stocks than risk a lot with Palantir’s high valuation.
Keithen Drury 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.
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