Palantir Technologies (PLTR -1.78%) has been on a tear lately. The data analytics company has captured investor attention with record results, surging demand for its AI-driven platforms, and a stock price that's been on an impressive run.
For many, the bullish case seems obvious: strong growth, expanding margins, and a technology stack that appears well positioned for the AI era.
But as any seasoned investor knows, there's a difference between a great business and an excellent stock. Palantir may have the first part nailed -- but the second is where the story gets complicated. Let's unpack both sides of the argument.
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Palantir is firing on all cylinders
Palantir's latest results blew past expectations. In the second quarter of 2025, revenue rose 48% year over year to $1 billion -- the highest in its history -- while adjusted operating income rose 24% to $464 million.
What's driving this surge? One is that Palantir's commercial business is expanding rapidly as enterprises adopt its Artificial Intelligence Platform (AIP) for their AI transformation. For perspective, the AI company closed a record $803 million in U.S. commercial total contract value (TCV), representing a 134% year-over-year improvement in the latest quarter.
But that's just part of the story. Palantir's traditional public sector business also delivered improvements, as U.S. government revenue increased 45% year over year in the same quarter. These twin engines of growth position the tech company well to sustain its momentum in the coming quarters, if not years, riding on the massive AI transformation wave.
Momentum could keep the rally going
Beyond fundamentals, Palantir is benefiting from a powerful momentum wave. The stock has gained more than 500% over the past year, and such rapid appreciation often attracts momentum traders and algorithmic funds. These investors aren't necessarily buying because they've done a deep dive into Palantir's financials -- they're buying because the trend is up.
Momentum can be a powerful short-term force. In Palantir's case, several factors are aligning to keep investor enthusiasm high:
- A strong narrative around AI leadership.
- Expanding adoption across both commercial and government sectors.
- Upwardly revised guidance often keeps analysts and traders optimistic.
This dynamic doesn't guarantee further gains, but it does mean that sentiment may continue to act as a tailwind in the coming month, especially if Palantir continues to deliver quarterly upside surprises.
However, momentum is notoriously fickle. When it turns, the same traders who piled in can exit just as quickly, amplifying the downside. That's why long-term investors should be careful not to confuse a price surge with a permanent shift in value.
The other side of the coin: valuation risk
While the business story is compelling, the investment case becomes more complex when we factor in valuation. Palantir currently trades at over 132 times sales -- a premium multiple that incorporates a significant amount of future success, among other factors.
History shows that even great companies can deliver mediocre returns if bought at overly optimistic valuations. Microsoft, for example, was a phenomenal business in the late 1990s -- yet investors who bought at the height of the dot-com boom had to wait more than a decade to break even, despite Microsoft's continued operational success.
That's the risk here: Palantir could continue to win new contracts, expand margins, and deepen its AI moat -- yet still deliver underwhelming stock returns if today's valuation already incorporates too much optimism.
Besides, paying a high premium for a stock leaves little margin for error. Just one quarter of weaker-than-expected performance can lead to a stock being rerated to a more reasonable valuation. Great for investors looking to buy, but a disaster for those who have purchased the stock at high prices.
What does it mean for investors?
Palantir's latest quarter showed record revenue and growing profits -- the kind of financial performance any growth investor would love to see. Furthermore, the company's AI platform is gaining traction, lending it a credible claim to being one of the most significant players in applied artificial intelligence.
In the near term, momentum and investor enthusiasm could push the stock higher. But over the longer term, the most significant risk may not be the business itself -- it's the price investors are willing to pay for it today.
While traders may be happy to ride the momentum, long-term investors, however, should think twice before making a bet. It will be prudent to wait for a more reasonable entry point.
