Big-data analytics company Palantir (PLTR -0.02%) has been a clear benefactor from the intense investor interest in artificial intelligence (AI). The stock has risen more than 130% so far this year. While some of that performance came from entering the year at a historic low, another part has come from strong execution.

Throughout 2023, Palantir has posted quarter after quarter with strong results, which has turned many skeptics into believers. But sometimes, seeing is believing, and if you want to understand how Palantir's business is doing, you need to look at the chart below.

Explosive growth in the U.S. commercial sector

Palantir provides artificial intelligence-powered data analysis in order to help with organizational decision-making. Its business is split into two main parts: commercial and government. While it initially focused on government clients, that area's growth is relatively capped, so pursuing growth on the commercial side is critical. As you can see below, commercial revenue rose 23% in Q3 -- a massive win for Palantir.

Chart showing Palantir's revenue streams for Q3 2023.

Image source: The Motley Fool

Even more impressive was the U.S. segment where commercial revenue grew 33% to $116 million. This is a critical market, and signing new customers is paramount to Palantir's expansion. The company signed 20 new customers in Q3, increasing its total to 181 (up 37% from 132 last year).

Another noteworthy point from Palantir's earnings was that its operating expenses declined 5.1% from last year. Palantir's management is serious about increasing its profitability, and they have recently shown their ability to responsibly grow (or cut) resources when necessary. These improvements helped increase Palantir's operating margin from a 13% loss last year to a 7% profit this year. This helps separate Palantir from other software companies that can't (or don't want to) break even.

Alongside its growing operating profits was a significant contribution from interest income, thanks to earning interest on the cash sitting on its balance sheet. This allowed Palantir to post a respectable 13% profit margin in the third quarter.

Those metrics should excite investors as its growth is accelerating, and the company is controlling its expenses tightly. But is the stock too expensive to buy?

Valuation has reached sky-high levels

The market isn't blind to Palantir's success. Investors everywhere have access to the information presented above, which is why the valuation of Palantir's stock skyrocketed in 2023.

PLTR PS Ratio Chart

PLTR P/S Ratio data by YCharts.

While investors used to be able to pick up shares for about 7 times sales, they now have to pay nearly triple that at 21 times sales. That is an expensive price to pay for a company, let alone one growing sales at 16% overall.

For me to be interested in a growth stock, its revenue growth must be twice to three times the price-to-sales valuation. With Palantir's growth rate less than its valuation, I'm concerned that the stock cannot support it unless growth accelerates. Wall Street analysts believe Palantir's revenue will grow at a 19% rate in 2024, so the outlook isn't any brighter.

While Palantir may be a solid artificial intelligence company with strong finances, I won't buy a stock at any price. With the latest spike after its earnings report, this stock is valued too high and should be avoided. However, if Palantir can find a way to accelerate its revenue growth into the 30% year over year range, I may reconsider my stance.

Until that time, I think there are much better ways to invest in AI than Palantir.