What Does Palantir Do?
Palantir Technologies is a major player in big data analytics, using AI and machine learning to analyze massive amounts of data. The company's two main platforms help government agencies with intelligence and defense analytics and serve commercial businesses.
Government Contracts: A Strength and a Risk
Nearly half of Palantir’s revenue comes from government contracts, making it highly dependent on public sector spending.
This reliance is a double-edged sword.
- The U.S. Department of Defense (DoD) is facing an 8% budget cut, amounting to $50 billion per year over the next five years. These cuts could limit Palantir’s ability to secure new contracts and hurt its revenue growth.
- On the other hand, national security concerns, border protection, and cybersecurity threats are increasing. This may lead to continued investment in data analytics tools, which could benefit Palantir despite budget cuts.
Is Palantir’s Stock Overvalued?
Palantir’s stock is trading at extremely high valuation multiples, which raises concerns about it being overpriced.
Enterprise Value/EBITDA: 566 – This means investors are paying 566 times the company's earnings before interest, taxes, depreciation, and amortization (EBITDA). A healthy tech company typically has an EV/EBITDA ratio of 10-30
Enterprise Value/Revenue: 67 – Investors are paying 67 times Palantir’s annual revenue, which is much higher than what’s considered reasonable
Price-to-Sales (P/S) Ratio: 72.5 – A P/S ratio under 10 is normal for tech companies. Palantir’s figure is far beyond this, indicating that the stock is priced for extreme growth expectations
Forward Price-to-Earnings (P/E) Ratio: 160x – This means Palantir is trading at 160 times its projected future earnings, compared to the industry median of 23.54x. The risk here is that the investors are overpaying for future growth, which may not materialize.
These figures indicate that Palantir’s stock is significantly overvalued, making it vulnerable to a sharp price correction if growth expectations aren’t met.
CEO Alex Karp’s Stock Sales: A Red Flag?
Palantir’s CEO, Alex Karp, has disclosed plans to sell nearly $10 million worth of shares in the next six months. While insider selling doesn’t always mean trouble, it can signal that executives lack confidence in the company’s short-term prospects. Given Palantir’s already stretched valuation, these sales could add more pressure on the stock price.
Macroeconomic Challenges for Palantir
Beyond company-specific risks, broader economic factors could further weigh on Palantir’s stock:
Rising Interest Rates – The Federal Reserve’s rate hikes make high-growth stocks like Palantir less attractive, as investors prefer safer, income-generating assets.
Stock Market Volatility – Tech stocks have been particularly unstable due to economic uncertainty, and Palantir’s high valuation makes it even more prone to corrections.
Business Slowdown – If corporate spending on data analytics slows, Palantir’s commercial segment could struggle to grow, adding more downside risk.
Could Palantir Drop to $30 in 2025?
While Palantir is currently trading well above $30, there are multiple factors that could drive its price lower:
- Government Budget Cuts – If defense spending shrinks, Palantir could see a major hit to its revenue.
- Stock Overvaluation – The market may correct Palantir’s inflated valuation, leading to a price drop.
- CEO and Insider Selling – Karp’s share sales and potential future insider selling could damage investor confidence.
- Macroeconomic Pressures – High interest rates and economic slowdown could further drag down high-growth tech stocks like Palantir.
However, if Palantir continues to win contracts despite budget cuts, expands its commercial business, and benefits from rising national security spending, it could sustain its valuation.