Can Palantir’s (PLTR) Rally Continue? Risks That Could Derail the Climb

Palantir (PLTR) has been setting new highs recently amid sustained attention. Even if you weren’t following the company, constant headlines and a rising share price naturally draw interest. What exactly does Palantir do, and why is its stock going up?

Palantir is a software-as-a-service (SaaS) company that runs a subscription business delivering AI-powered software via the cloud.
Its core customers include U.S. government agencies such as the CIA, FBI, and the Department of Defense. More recently, it has expanded into the commercial sector and is now partnering with a wide range of corporations. The company is currently listed on the New York Stock Exchange (NYSE), but it has announced plans to move to the Nasdaq Global Select Market as of November 26, 2024.

Simply calling it an AI software company doesn’t really convey what kind of value Palantir delivers to government agencies and enterprises.

To put Palantir’s products in simple terms: they are about aggregating information for decision-making.
In areas such as counterterrorism, criminal investigations, natural disaster response, border security, and energy optimization, Palantir aggregates and analyzes data, then delivers the results to government agencies so they can make decisions more efficiently. For companies, Palantir’s technology is equally critical for automating customer management, predicting customer behavior, cutting logistics costs, and identifying bottlenecks.

Palantir’s 24Q3 revenue came in at $725.52 million, up 30% year over year. Its operating margin reached 38%, a figure that is certainly rare in the software industry.
The numbers were strong enough that CEO Alex Karp joked, “I feel like we could just go home now.”

Palantir initially focused on U.S. intelligence and defense, but it has since expanded into the commercial sector. Commercial revenue grew 23% year over year and was a key driver of Palantir’s results. The growth in its legacy government business (intelligence and defense) is also hard to ignore. Since 2023, that segment has grown an average of 18.4% per quarter, suggesting that growth there is far from over.

Behind this performance is AI.

When you think of AI use cases, what comes to mind?
Search engines powered by large language models (LLMs), services that turn text into images, tools that summarize reviews...
Palantir has gone beyond simply adopting AI and has turned it into a tool that provides concrete data for decision-making. In a world where LLMs have become somewhat standardized, Palantir has managed to create substantially higher added value and build an environment where AI can generate real cash flows.

This is thanks to Palantir’s “ontology” approach, which maps a customer’s data and processes and encodes them into its solutions.

Take an airline as an example. You can define the airline’s ontology as five types of objects and their relationships: a) aircraft, b) flights, c) airlines, d) airports, and e) delays.
By mapping this data onto workflows, you can see which parts of the process can be improved. This is how Palantir has been delivering solutions for the past 20 years.

But the larger an organization becomes, the more complex its ontology inevitably gets, because ontology is essentially a map of the organization’s data and processes. This is where AI comes in. By introducing AI into the data integration process, Palantir can automatically understand data structures, identify correlations, and connect them into the ontology. In other words, AI has made it possible to achieve results that are faster, more accurate, and more flexible.

According to Palantir’s 24Q3 earnings call, Palantir

While competitors are still stuck at the prototype stage, Palantir is already delivering tangible results and securing a competitive edge.

Taken at face value, all this suggests Palantir is indeed a leading player in AI. But we still need to think carefully about whether buying the stock "now" makes sense.

Palantir is currently trading at a multiple of 43 times its projected 2025 revenue. That is more than four times higher than comparable tech companies, implying a significant valuation overhang.

How demanding is that? For Palantir to merely hold its current share price, it would need to post annual growth of 40% for four consecutive years and still trade at 12 times its expected 2028 revenue.

Co-founder Peter Thiel then sold about 28.6 million shares between September and October 2024, and CEO Alex Karp sold roughly 25.5 million shares from late October through November 18. This from an executive who has claimed the company is three years ahead of its rivals.

According to a 10b5-1 trading plan filed on November 7, 2024, Alex Karp also plans to sell an additional 9 million shares by May 2025.

Do insiders also recognize how stretched the valuation is? Can Palantir’s growth momentum really be sustained? The fact that the share price continues to soar despite these valuation concerns shows just how powerful the AI premium has become. At the same time, it suggests that even a slight cooling of AI enthusiasm could trigger extreme volatility.

Everyone enjoys going out to eat and having a great meal. But it only truly makes sense when the price is reasonable. Palantir is undoubtedly a quality company. The question is whether the price is reasonable.

Palantir is a stock your head tells you not to buy, but your heart wants to own. It may be worth adding it to your watchlist and keeping a close eye on it.