Palantir Technologies (PLTR 0.28%) shares have been volatile all year, but primarily to the upside. Lately, however, this volatility is working against shareholders. Following a triple-digit increase in 2025, the stock has been pummeled over the past week. But let's be clear: Even after this recent pullback, the stock is still up sharply year to date. Indeed, shares are still twice as high as they started the year as of this writing. Even more, the stock is up more than 800% since the beginning of last year. In other words, this isn't a major reversal in the grand scheme of its momentum last year and in 2025 -- it's just a very hot stock cooling off.
What's changed recently? Not the story under the hood. The data and artificial intelligence (AI) company's second‑quarter update was exceptional on the surface and gave bulls more to cheer about. The issue for investors is whether that strong print and upbeat outlook are already priced into the stock's sky-high valuation.
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A growth stock by every metric
Palantir delivered 48% year‑over‑year revenue growth in Q2 to just over $1 billion. Its U.S. commercial revenue was the standout, up 93% year over year to roughly $306 million. Management also raised full‑year revenue guidance to about 45% year-over-year growth and forecast Q3 revenue to grow 50%. Those are big numbers.
In addition, profitability looks to be here to stay. Palantir reported robust GAAP net income for the quarter of $327 million and strong cash generation. And it achieved that while also booking its highest total contract value ever -- at $2.3 billion, up 140% year over year.
The business momentum here is real, and it is spread across both the company's government and commercial customers.
Add it up, and Palantir's second quarter provided what investors should want from a growth stock: accelerating top‑line growth, improving profitability, and a bigger pipeline of contracted work.
Great business, tough setup for the stock
So why not buy the dip? Because, despite the recent slide from highs, the stock is still egregiously priced. After a triple‑digit move higher this year, even a bad week doesn't change the core problem for new buyers: There's no room for error. The market is already pricing in years of extraordinary growth and expanding margins. That can work -- until it doesn't.
Getting more specific on valuation, note that Palantir trades at 127 times sales. Yes, that's sales, not earnings. Its price-to-earnings multiple? 580. Even looking ahead, its forward price-to-earnings multiple is an astounding 278. These multiples compare with a 25 price-to-earnings multiple for the S&P 500 and a forward multiple for the market index of 24.
There are business risks worth noting, too. Government work is lumpy, creating a risk of future periods in which this core segment underperforms. In addition, competitive pressures in enterprise AI are rising. These threats combine to create the stock's biggest risk: If growth normalizes from these elevated levels, the stock's euphoric valuation premium could fade or, even worse, collapse. When a name is this widely owned and expectations are this high, small disappointments get amplified.
None of this is a knock on the company's execution. It's been outstanding. Management upped guidance after a blockbuster quarter, its commercial engine is firing on all cylinders, and the company's cash profile is improving. But outstanding businesses don't always translate into outstanding entry points. The stock simply ran too far, too fast, far ahead of the fundamentals. The latest pullback mostly trims excess. We'll need a deeper sell-off to start chipping away at valuation risk.
Ultimately, I believe Palantir is a tech stock to keep on the watchlist, not one to chase on a dip. The company's momentum is clear, but the stock has just overaccelerated. If shares get demolished, I might take a closer look at the stock. Until then, I'm fine staying on the sidelines. There are other stocks to buy. Sure, it's possible that the business exceeds all expectations and shares perform very well over the long haul. But I'm OK missing out. The risk is too high for my tolerance.
