Palantir Technologies (PLTR) was one of the hottest stocks of 2024, rising by a staggering 340%. A $15,000 investment in the data analytics stock at the start of the year would have been worth more than $66,000 by the end of it.
A big reason for Palantir stock’s impressive performance is the exciting revenue growth the business has been generating. Using artificial intelligence (AI), its data analytics platform has unlocked new ways for government and commercial customers to automate their processes and enhance their decision-making.
With CEO Alex Karp seeing a lot more growth coming in the future, investors have been eager to buy up shares of the business. Palantir reports its next round of earnings numbers on Feb. 3. Should investors buy the stock before that happens?
Will Palantir’s revenue growth zoom higher?
Palantir’s Artificial Intelligence Platform (AIP) has proven to be a huge catalyst for the business. The company has been showing potential customers — through what it calls boot camps — the value that its platform can have for businesses, and sales have been taking off as a result of strong AI-related demand. In fact, Palantir’s already high level of revenue growth has been accelerating in recent quarters.
PLTR Operating Revenue (Quarterly YoY Growth) data by YCharts
When the company last reported earnings in November, Karp said that demand was “unrelenting” and that the company “absolutely eviscerated this quarter,” with revenue growing at a rate of 30% year over year.
Karp has been hyping up the business, and that means expectations will be high for Palantir when it releases its results on Feb. 3. But even if it can deliver, that may not be enough to send the stock soaring.
Is the stock’s slow start to 2025 a sign of things to come?
Shares of Palantir are down just over 5% to start the new year as I write this. That’s not a huge sell-off by any means, but it could be a sign that perhaps the feverish excitement around the stock is starting to wane.
The biggest problem for the AI stock is undoubtedly its valuation. Although Palantir’s earnings have been growing, the stock is still incredibly expensive and is trading at around 150 times next year’s expected profits. Even if you take a longer-term view, its price/earnings-to-growth (PEG) multiple is more than 3. Typically, a growth stock is viewed as a cheap buy if its PEG ratio is below 1, and Palantir is nowhere near that.
The caution for those looking at the short term is that even if Palantir’s growth rate has accelerated yet again, that may not be enough to trigger a big rally for the stock. That’s because at such a high premium, a lot of growth is already priced into its valuation. Unless Palantir massively beats earnings expectations and provides glowing guidance for the rest of the year, there’s the possibility that it’s stock could still fall in value in the short term.
Why investors may want to hold off on buying Palantir’s stock
At its current valuation, Palantir’s stock looks to have a lot more downside risk than possible upside.
Palantir’s upcoming earnings numbers may help tell investors two important things. The first is whether Palantir’s growth is truly unrelenting and still going higher. The second is whether the market is starting to cool off and if Palantir’s valuation is becoming more of a concern for investors. If the company delivers a strong quarter and the stock doesn’t rally, it could be further confirmation that there’s some growing hesitancy around the stock’s high price.
This is one of the riskier stocks to own this year due to its enormous valuation and while it may be an intriguing one to follow, there are many better-priced growth stocks out there to buy today.
David Jagielski 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.