Palantir’s growth in the government sector has been outstanding.
The company could receive a significant boost from growing European demand for artificial intelligence (AI).
However, the stock’s valuation has become excessively high.
Palantir Technologies (NASDAQ: PLTR) has been one of the top-performing stocks since the start of 2024, rising nearly 700%. It has also been a top performer in 2025, rising 80% so far. Palantir’s business has been booming alongside the artificial intelligence (AI) arms race. With no signs of AI spending slowing down, investors are speculating that Palantir’s stock could eventually reach a $1 trillion market capitalization.
Palantir’s current valuation hovers around $320 billion, so the stock would need to more than triple to cross that threshold. But can that happen over the next decade?
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Palantir offers AI-powered data analytics solutions that help decision makers make the best choice possible. Originally, Palantir began with government clients, but it has also expanded into the commercial sector over the past few years.
Although commercial revenue has grown significantly, government revenue still makes up the majority of Palantir’s total revenue. In Q1, government revenue was $487 million, and on the commercial side, it was $397 million. Government revenue is also rapidly increasing, rising 45% year over year. The U.S. government increased at the same rate as international, indicating widespread adoption of Palantir’s products worldwide.
However, that story is completely different on the commercial side. U.S. commercial revenue rose 71% year over year in Q1, while overall commercial revenue rose 33%. This indicates global AI adoption (specifically in Europe) lags the U.S., but that story could change over the next few years. That could rapidly accelerate and cause Palantir’s impressive 39% growth rate to rise even further.
Palantir bulls point to this as a reason why the stock could reach a $1 trillion valuation by 2035. However, the bears have another key point to consider, and it could derail the entire investment thesis.
One thing that should raise a red flag for investors with Palantir’s stock is its 700% rise alongside its 39% growth rate. Those two figures are completely mismatched, indicating that Palantir’s stock might be overvalued.
After evaluating Palantir’s price-to-sales valuation, this fact is confirmed.
PLTR PS Ratio data by YCharts
Most software companies trade at a multiple of 10 to 20 times sales. The best companies with rapid growth rates can trade upwards of 30 times sales. However, Palantir’s stock is more than three times that level. Achieving nearly 110 times sales is practically unheard of in the stock market, and if a stock ever reaches that valuation, it usually only does so when it’s doubling or tripling its revenue year over year. Even then, some of those companies crash from a high valuation.
Even if Palantir gets a boost from rising European revenue, I don’t think it’s going to be enough to propel its stock to a reasonable level. Multiple years of revenue growth are already baked into the stock price. For Palantir to achieve a still very expensive but far more reasonable price tag of 30 times sales, it would require 363% revenue growth from today’s levels.
As a result, I don’t think Palantir can triple its stock price over the next decade because it’s going to spend the first part of it growing into the extremely high valuation it has now. Investors need to be cautious because high expectations are already baked into the stock price; any misstep could cause the stock to tumble back to reality.
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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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