Palantir (PLTR +1.65%) is one of the hottest artificial intelligence (AI) stocks on the market right now, and it just delivered another blowout quarter. However, the stock fell following earnings, which may be an indication that Palantir's blowout results may not be enough to justify a higher stock price.
Although Palantir has been a wonderful investment over the past few years, the question remains if it's still a stock worth buying today. After all, it has risen to become one of the top 20 largest companies by market cap in the world. So, is it too late to buy Palantir's stock, or is the time just right?
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Palantir's platform is being adopted at an unprecedented rate
Palantir's platform is centered around AI-powered data analytics. Essentially, it gives its users the tools they need to make the best decision possible at any time. This is real in several industries, including government-related fields in which Palantir got its start.
Another exciting area Palantir is leading the way in is the deployment of generative AI agents that can automate some of the mundane tasks that employees used to do. This unlocks a new level of efficiency, which can make the upfront cost worth it in the end.
NASDAQ: PLTR
Key Data Points
Palantir's financial results have been nothing short of jaw-dropping, and Q3 was no exception. Palantir announced 63% revenue growth to $1.181 billion, far outpacing the $1.085 billion guidance it issued for Q3 during its Q2 report. One area in particular that saw incredible growth was in U.S. commercial revenue. This division's revenue skyrocketed 121% to year over year to $397 million. With U.S. clients going all-in on AI adoption, this bodes well for Palantir's future.
However, commercial revenue still isn't Palantir's largest segment.
Government revenue still leads commercial by a decent margin. U.S. government revenue growth rose 52% year over year, so even if the government is in cost-cutting mode, it isn't skimping on AI products from Palantir. Furthermore, foreign governments are adopting Palantir's products, too. Overall, government revenue rose at a 55% pace, indicating that foreign governments are adopting Palantir's technology faster than the U.S.
All of this led to a phenomenal quarter for Palantir, but the question remains: Is it too late to buy the stock now?
Palantir's stock is pricing in years of successful growth
I'll be the first to say that Palantir's business is incredible and will have a ton of success over the long term. However, the stock and the business have unlinked themselves from each other. Palantir's stock is easily one of the most expensive on the market, trading for a jaw-dropping 140 times sales and 223 times 2026 earnings.
PLTR PE Ratio (Forward 1y) data by YCharts
Those price tags indicate a ton of growth is already priced into the stock, and it worries me about future returns that Palantir may not be able to generate for investors.
If we assume that Palantir can grow its revenue at a compound annual growth rate (CAGR) of 50% over the next five years, that would yield revenue of $26.1 billion. Palantir has also managed to generate an impressive profit margin of about 35%, and if it can maintain this level, it will produce $9.1 billion in profits.
If we assign a far more reasonable valuation of 50 times trailing earnings, appropriate for the level of growth and quality of business, that would value Palantir's stock at a market cap of $457 billion.
Considering Palantir's market cap is already $452 billion, that's a flat return over a five-year time frame. This makes it far too late to buy Palantir stock, as its growth has already been baked into the stock price. All it will take is one bad earnings report for Palantir to crater, as the expectation has become that Palantir must massively exceed expectations.
I think Palantir's business will continue to excel, but its stock has such a premium price that I cannot justify owning it at these levels.
