The stock market has been overwhelmed by uncertainty so far this year. Ongoing negotiations related to President Donald Trump's tariffs, mixed economic data, and the potential for Fed rate cuts have investors both curious and anxious. With so many unknowns surrounding the macroeconomic picture, it's no wonder the momentum that fueled the S&P 500 and Nasdaq Composite indexes for the last couple of years has come to a halt.
Despite all of the uncertainty surrounding the capital markets, some stocks continue to rack up gains in 2025. One of the year's most notable winners is Palantir Technologies (PLTR -0.97%), which has climbed 77% as of this writing, making it the top-performing stock in the Nasdaq-100 and S&P 500.
While Palantir's epic rally continues, some prominent investors on Wall Street have been dumping the stock -- likely due to valuation concerns.
Let's explore Palantir's latest win and assess how the company's progress is fueling unprecedented enthusiasm for the stock. From there, I'll analyze some valuation trends to determine if the stock is a good buy right now.
1.28 billion reasons to keep Palantir stock on your radar
When you look at Palantir's share price trajectory in 2025, it can be hard to digest upon first glance. Back in February, Palantir stock plummeted after news broke that the president had ordered the Department of Defense (DOD) to reduce its budget. Not only does Palantir derive more than half of its business from government contracts, but many of the company's relationships are tied to the military. The sell-off earlier this year is a clear example of panic-driven, emotional behavior as investors feared Palantir would be a victim of the Department of Government Efficiency (DOGE).
Following the initial news around the DOD budget cuts, however, Defense Secretary Hegseth started to drop some breadcrumbs that had me thinking Palantir might actually benefit from reductions in government spending.
Specifically, Hegseth announced that he wanted to double down on a previously instituted policy called the Software Acquisition Pathway (SWP). I viewed that as an opportunity for Palantir to showcase its artificial intelligence (AI) software playbook and potentially replace existing infrastructure at the Pentagon as part of the budget cut procedures.
While it's still early days for this new initiative at the DOD, Palantir does indeed appear to already be benefiting. In late May, the DOD announced that Palantir was awarded a $795 million software license for its Maven Smart System (MSS). While that alone would be a big win, consider the fact that this deal was an expansion of Palantir's original MSS deal, worth about $480 million.
In essence, as the DOD cleans house and looks for areas to reduce spending, Palantir has actually managed to strengthen its relationship with the U.S. military -- turning just one Maven contract into a $1.28 billion deal.
Image source: Getty Images.
Is Palantir's valuation justified?
As a Palantir bull myself, I completely understand the excitement surrounding the company. And while the new Maven contract is impressive, smart investors understand that chasing momentum based on headlines is not a prudent strategy.
Data by YCharts.
Palantir is trading at a price-to-sales (P/S) ratio of more than 100 as of this writing. This is three times higher than the next closest stock in the software peer group shown above. Moreover, Palantir's P/S multiple is significantly higher than what investors witnessed even during the peak euphoria of the dot-com bubble.
Given this context, not only is Palantir stock pricey, but I'd argue it's historically overvalued.
Is Palantir stock a buy right now?
When it comes to expensive momentum stocks, it's natural for some investors to feel they missed the boat and seek out alternatives.
But I would not do that when it comes to Palantir. The company's ability to thrive and grow during such a turbulent economic picture underscores how important Palantir is becoming in the broader AI landscape.
The high valuation does present a risk, though, so a reasonable strategy is to buy Palantir stock at regular intervals and varying price points (an approach also known as dollar-cost averaging).
The latest Maven deal can be a catalyst to change investors' minds about the overall opportunity Palantir faces, but it's not necessarily a reason to rush into the stock at this very moment.
