Palantir Technologies (PLTR +3.03%) stock rallied impressively in 2024 after it became evident that the software platforms and data analytics specialist benefits from the fast-growing demand for artificial intelligence (AI) software. The stock started 2025 on a solid footing as well. However, since hitting an all-time high in mid-February, the stock price has fallen as much as 40% and is currently trading almost 14% down. Palantir's decline can be attributed to the broader stock market pullback triggered by the tariff-fueled trade war.
Despite the price drop, the demand for Palantir's AI software solutions remains solid, as evidenced by a recent military contract that the company landed. Moreover, the AI software platforms market that Palantir serves is expected to generate $153 billion in annual revenue in 2028, suggesting a compound annual growth rate of 41% over a five-year period.
It won't be surprising to see the demand for Palantir's AI software solutions jump higher in the coming years. So, should investors consider buying Palantir stock following its recent pullback to take advantage of the rapid growth in the AI software platforms market?
NASDAQ: PLTR
Key Data Points
This is the biggest concern for Palantir investors right now
One of the reasons why Palantir stock pulled back following its strong start to the year was the valuation. The stock was already expensive at the end of 2024, as is evident from the chart below, and it continues to trade at a premium valuation even now.
Data by YCharts.
With investors in risk-reduction mode over concerns about economic uncertainty that has them moving capital toward safer assets, there is a chance that Palantir stock could remain under pressure near term. If that's indeed the case, now might be a good time to start accumulating shares of Palantir because it's showing solid indications that it can justify its inflated valuation.
The stock could deliver solid gains despite macroeconomic headwinds
Despite the tariff-fueled market sell-off, Palantir stock is up 42% so far in 2025. The stock has shown resilience, and that can be attributed to the tariff-resistant nature of the company's business. Of course, higher input costs on account of tariffs could lead Palantir's customers to cut spending, but the efficiency gains that its Artificial Intelligence Platform (AIP) has been delivering could shield it from such cuts.
Palantir's AIP allows customers to integrate generative AI solutions into their business operations. Customers using AIP have been able to reduce operating costs and/or enhance productivity, according to management reports on the company's February earnings conference call. Chief Technology Officer Shyam Sankar offered up a couple of examples:
We have been working with a large multinational bank to automate core back office processes. What used to take five days now takes three minutes. Much more than the labor savings, this improvement eliminates historical constraints on the middle office and now enables the bank to create entirely new and differentiated financial products. We're working with the top engineering and construction firm to automate the identification of risks across tens of thousands of pages of technical documents, replacing months of arduous manual reviews with AI labor that can flag major risks to engineers in minutes.
Not surprisingly, Palantir's customers have been increasing the deployment of its software solutions and are signing bigger contracts with the company. This explains why Palantir's total contract value shot up an impressive 56% year over year in the fourth quarter of 2024 to $1.8 billion. That was faster than the 36% growth in the company's top line during the quarter.
Even better, Palantir's earnings grew at a much stronger pace of 75% from the year-ago period. This isn't surprising as bigger contracts from existing customers mean that the company doesn't need to spend more money on gaining new business from them, which contributes toward positive unit economics.
This explains why Palantir seems capable of easily outpacing Wall Street's growth expectations. Consensus estimates project a 35% increase in the company's earnings in 2025, but that estimate has headed higher significantly in the past few months.
Data by YCharts.
Given that Palantir already has a terrific revenue pipeline of $5.4 billion, which is evident from its remaining deal value at the end of 2024, it could very well exceed its 2025 revenue guidance of $3.75 billion. The remaining deal value refers to the total remaining value of contracts that have yet to be fulfilled at the end of a quarter, and this metric shot up 40% year over year in Q4 thanks to a sharp jump in the number of contracts Palantir signed.
The massive opportunity in the AI software platforms market means that Palantir could continue gaining more business at a nice clip, especially considering its solid position in this space. Third-party reports suggest that Palantir's AI software platform is better than its peers, which is why the company should be able to attract more customers and corner a bigger share of the huge end-market opportunity on offer.
Palantir's outstanding growth seems here to stay despite the tariff turmoil as it is one of the leading players in a rapidly growing space and is helping customers improve productivity and achieve cost savings with the help of AI. All this makes Palantir worth buying since it can justify its valuation by delivering better-than-expected numbers, which could lead the market to reward this growth stock with more upside.
