Palantir (PLTR +3.40%) stock has been one of the top performers in 2025. In the first half of the year, its stock has soared around 90%. That's fantastic news for Palantir shareholders, but they must ask the question: Has Palantir's business performed well enough to warrant that rise?
Judging from its finances and stock valuation, that answer would be a resounding no. The reality is that Palantir's fundamentals don't support its current price tag, and investors need to be cautious holding onto shares at these levels. Let's examine how other stocks have performed when they've achieved valuations comparable to Palantir's. Spoiler alert: They've all been disasters for investors.
Image source: Getty Images.
Palantir's revenue growth rate is far less than its stock price performance
Palantir makes artificial intelligence (AI) software that helps its users make informed decisions based on real-time data. This software originated from government use cases but has since expanded into the commercial sector. Government revenue still accounts for the majority of Palantir's total, but its commercial segment also generates a significant portion of revenue.
Investors have viewed Palantir as a pure play in the AI space and have identified it as a company that will thrive as demand for AI software increases. This part of Palantir's investment thesis has been dead-on, and Palantir has delivered excellent growth.
NASDAQ: PLTR
Key Data Points
In the first quarter, Palantir's revenue rose 39% year over year to $884 million. U.S. commercial revenue was the highlight of the quarter, with revenue rising 71% year over year to $255 million. For Q2, management projects revenue of $936 million, representing a 38% revenue growth rate. While that indicates a slowdown from the rate in Q1, investors shouldn't read too much into it. Management has a history of beating internal expectations, so if Palantir's Q2 growth rate comes in around the low 40% range, investors shouldn't be surprised.
However, the stock has risen 90% in the past six months, while revenue has increased by only 39% year over year. This should immediately raise red flags for investors, as stocks follow their growth rates over the long term. In the short term, noise can distort that correlation.
The problem is that Palantir's stock also rose significantly in 2024, and the stock has completely uncoupled itself from the actual business.
Palantir's valuation places it among poor investments
After Palantir's astronomical rise, the stock now trades for 115 times sales.
PLTR PS Ratio data by YCharts
Few stocks have ever traded at this level, and none of the stocks we're about to look at have traded at this expensive of a price tag with as "slow" of growth as Palantir.
Here are a few examples of some stocks that have traded at more than 100 times sales.
Zoom Communications (ZM +4.49%) was a clear beneficiary of the COVID-19 pandemic, helping to save many businesses during that time. It maxed out at 125 times sales, but was growing revenue at a 350% year over year pace. However, the stock is still down 86% from all-time highs.
ZM Operating Revenue (Quarterly YoY Growth) data by YCharts
One could argue that this isn't a fair comparison because Zoom's growth rate has collapsed to near zero, which I think is a valid point.
Snowflake (SNOW +10.84%) is another example of a company that experienced rapid growth and sustained it for a considerable period. It generated revenue growth for multiple years above the 50% threshold, which is significantly higher than Palantir's current rate. However, if you bought shares at its initial public offering in 2020 or during late 2022 when it last traded for more than 100 times sales, you're down around 45%.
SNOW Operating Revenue (Quarterly YoY Growth) data by YCharts
The reality is that 100 times sales is an unrealistic expectation for any stock. Although it may take some time before we see a correction, it's coming for Palantir. It simply doesn't have the growth rate to justify a valuation of 100 times sales or greater, and it's currently trading on hype.
Investors need to be cautious here, as I'm positive that Palantir will trade at a lower price in a few years. There hasn't been a company that has produced solid results after trading at 100 times sales, and investors should move on from Palantir before it's too late.
