The stock price for the artificial intelligence (AI) data analyzing specialist Palantir Technologies (PLTR +1.10%) seems to have no ceiling. Despite some obstacles and volatility in the market in 2025, Palantir's stock jumped 129% year to date and is up over 1,720% over the last five years. Those returns have made the stock a darling of the market. They also contributed to Palantir's meteoric valuation.
While the business case for Palantir shows the company has immense potential, one famed short-seller thinks the stock has run way too high. If his theory holds, Palantir investors could be facing a significant pullback at some point.
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Palantir has made a business out of data analysis
Palantir is a data decision-making company that leverages artificial intelligence. Not only can the company's software gather and organize data in entirely new ways, but the AI platform also provides unique insights and even recommends actions based on the data and the implications of those decisions. Several departments in the U.S. government are Palantir clients, and the company has reached a point where the market recognizes its game-changing technology. For instance, the U.S. Department of Defense uses Palantir to help manage its counter-terrorism efforts, gathering data from various sources that are completely random to one another and extracting potentially useful intel.
A big selling point for Palantir is that its technology is usable by people who don't have experience working with large language models and high-level coding. Palantir's data capabilities are also applicable to more than just government entities, and its platform is attracting interest from many different commercial companies across multiple sectors.
Not even the best company in the world can sustain these valuations
In the second quarter of the year, Palantir generated $327 million in net income ($0.13 diluted earnings per share) on revenue of just over $1 billion that grew 48% year over year. Palantir raised its full-year revenue guidance and now expects to generate as much as $4.15 billion. Management is excited by commercial growth and is guiding for 2025 U.S. commercial-based revenue to increase at least 85% year over year to at least $1.3 billion.
NASDAQ: PLTR
Key Data Points
Most companies would love to be able to generate these financial metrics. Andrew Left, the famous short-seller who runs Citron Research, had lots of good things to say about Palantir, praising its CEO during an interview aired on Fox Business last week, calling it a "wonderful company." However, Left also expressed concerns about Palantir's sky-high valuation. Palantir stock trades at 279 times forward earnings and close to 99 times forward sales.
"It's a wonderful company, but if this was the greatest company that was ever created and we gave it the same multiples, let's say Nvidia in 2023, the stock still can get cut by two-thirds," he said. "And that would be like 35 times sales."
Left said in the interview that he is also worried about potential competition. He said that one of Palantir's toughest competitors, Databricks, which could go public this year, has similar revenue as Palantir and more corporate clients.
Every asset has a price
Left isn't the only market analyst expressing concern about the valuation. Several other Wall Street analysts are now neutral on the stock, and a few even have a sell rating on the name. Based on 20 research reports issued on the company over the past three months, the average price target implies a roughly 16% downside to the current price, according to TipRanks.
I tend to agree with Left's analysis here. Palantir's technology is undoubtedly very impressive and gaining strong traction in both the government and commercial arenas. But the company now has a $430 billion market cap and is simply overvalued. As companies get bigger, the law of large numbers suggests that appreciation gets harder because valuations get stretched.
Investors are now in a position where the risk-reward proposition is tilted more toward risk. The market now expects Palantir to keep putting up great numbers and raising guidance. But a simple misstep could send shares tumbling. I would avoid the stock and wait for better entry points.
