Palantir Technologies (PLTR 0.70%) has been one of the market's top-performing stocks over the past few years. It's up over 135% so far in 2025, leading investors to wonder if it's too late to buy shares now. Picking a stock winner over a month or two can be a difficult job, so I prefer to focus on a longer time frame. By focusing on a three to five-year time frame, you can let business results affect the stock more than market sentiment.
Three years from now, I expect Palantir's stock price to be drastically different than today's levels. If I'm right, you're going to want to take action now, as it could have a huge effect on your future returns.
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Palantir's AI platform is seeing rapid adoption
Palantir's artificial intelligence-powered data analytics software has been around for some time. Originally, it started off as a platform that was intended for government use, but it eventually saw commercial adoption. Both government and commercial revenue are a huge part of Palantir's investment thesis today, and each is growing rapidly.
Most of this growth stems from the AI arms race, especially with Palantir's ability to deploy generative AI through its Artificial Intelligence Platform (AIP) product. AIP has become a massive growth engine for Palantir, as it can automate workloads using AI agents.
Palantir's 48% growth rate in Q2 is evidence of this impressive growth, and I wouldn't be surprised if it can keep this elevated growth rate up for a few years. Additionally, Palantir is posting impressive profit margins, with it delivering a 33% net income margin in Q2.
Palantir is operating in a rapidly expanding industry, growing quickly, and generating monster profits. This seems like a no-brainer buy, so what price could the stock hit three years from now?
Palantir's valuation is unsustainable
Having a strong business and impressive growth is only part of an investment thesis. Even the best companies bought for the wrong price can turn out to be lousy investments. I believe Palantir falls into this category, as its valuation has reached unbelievable levels.
Palantir is valued at 132 times sales and 279 times forward earnings.
PLTR PE Ratio (Forward) data by YCharts
That's a ton of growth baked into the stock price, and it doesn't bode well for Palantir's future returns.
Let's make these assumptions to determine Palantir's stock price over the next three years:
- Palantir's revenue growth rate stays at 50%;
- Palantir's profit margin increases to 35%;
- Palantir's share count remains steady.
If that occurs, Palantir's revenue and profits will rise from $3.44 billion and $772 million, respectively, to $11.6 billion and $4.06 billion three years from now. That's huge growth, but with Palantir's $426 billion market cap, that prices the stock at 36.7 times forward sales and 105 times forward earnings.
That's still a very expensive stock, especially when you consider that AI king Nvidia has never traded for more than 50 times sales or forward earnings since the AI arms race began, even when it was tripling revenue year over year.
A far more reasonable valuation for Palantir to trade at is 40 times forward earnings. If the above projections came true and Palantir's stock traded at that level, it would have a stock price of about $68. That's a far cry from today's $179 price.
If I turn out to be right, investors are going to want to move on from Palantir. I think this is the right choice, as the risk-reward profile for Palantir isn't great. There are far more promising AI stocks to buy that are reasonably priced, and these will be the ones that post solid long-term gains that aren't driven by hype.
