Meet the Monster Stock that Continues to Crush the Market

Palantir (PLTR -1.23%), the data mining and analytics firm named after the all-seeing orbs from The Lord of the Rings, has been one of the market's hottest growth stocks. It went public via a direct listing on Sept. 30, 2020, and began trading at $10. Today, it trades at nearly $180.

During the same period, the S&P 500 rose by about 90%. Let's see why Palantir's stock outperformed the market by such a wide margin -- and if it still has more upside potential.

Image source: Getty Images.

What drives Palantir's rapid growth?

Palantir operates two main platforms: Gotham, for its government customers, and Foundry, for its commercial customers. Both of these platforms gather data from disparate sources, analyze all of that information to spot trends, and help their clients make faster data-driven decisions.

Most U.S. government agencies already use Gotham to aggregate and analyze data. The high switching costs keep those agencies locked in, while giving Palantir plenty of opportunities to secure new contracts. Meanwhile, Foundry is gaining many commercial customers -- especially in the U.S. -- who want to accumulate and organize their data for AI applications. It also provides tools that help those clients build their own AI applications.

In the first half of 2025, Palantir generated 55% of its revenue from its government business and the remaining 45% from its commercial business. Here's how those two businesses fared over the past five and a half years.

Data source: Palantir. YOY = Year-over-year.

When Palantir went public, it claimed it could grow its revenue by at least 30% annually through 2025. But in 2022 and 2023, its growth decelerated as it struggled with the uneven timing of its government contracts and gained fewer commercial customers in a challenging macro environment.

But over the past two years, Palantir's growth accelerated again. The intensifying geopolitical conflicts drove the U.S. and other countries to use Gotham to fortify their intelligence and military operations. Stable inflation, declining interest rates, and the rapid growth of the AI market also drove more companies to ramp up their spending on Foundry's services. For the full year, it expects its revenue to rise about 45% as it maintains that momentum.

Palantir also turned profitable on a generally accepted accounting principles (GAAP) basis in 2023 and 2024 as economies of scale kicked in, it streamlined its spending, and it reined in its stock-based compensation. Those stable profits led to its inclusion in the S&P 500 last September and the Nasdaq-100 last December. It expects to stay profitable in every quarter of 2025, and analysts expect its EPS to jump 132% for the full year.

Can Palantir justify its premium valuation?

Palantir enjoys an early mover's advantage in the government market, and it's leveraging that battle-hardened reputation to grow its commercial business. Those strengths should widen its moat against smaller AI companies like C3.ai and BigBear.ai, data aggregation companies like Databricks, and diversified tech giants like Salesforce and Microsoft.

From 2024 to 2027, analysts expect Palantir's revenue and EPS to grow at a CAGR of 37% and 63%, respectively. However, a lot of that growth trajectory is already baked into its current valuations. It already trades at 298 times forward earnings and 74 times next year's sales -- so it could be cut in half and still be considered expensive relative to its growth potential. That might be why its insiders sold nearly 60% as many shares as they bought over the past 12 months.

Palantir's business is growing at a healthy rate, but investors shouldn't pay the wrong price for the right stock. Its valuations are hitting meme stock levels, and it could underperform the market in the future if it faces any unexpected macro, competitive, or regulatory headwinds.