Palantir Technologies (PLTR 1.66%) stock has delivered massive returns to investors in the past year, but the artificial intelligence (AI) software company seems to have run into a bad patch of late following the release of its latest quarterly results.
It's been just over a week since Palantir reported its Q3 earnings on Nov. 3. The stock has lost 6% of its value since then (as of this writing). The surprising thing to note is that Palantir stock slipped even though it delivered a beat-and-raise report. The company's growth continues to get better with each passing quarter, thanks to the improving demand for its AI software solutions.
However, Palantir's valuation and concerns about the state of the economy have led investors to press the panic button. Does this mean Palantir stock is in for a sluggish performance in the coming year? Let's find out.
Image source: Getty Images.
Analysts are expecting double-digit gains from Palantir in the coming year
Palantir stock has more than tripled in the past year, appreciating by a whopping 231%. The stock's 12-month median price target of $200 suggests it can jump just 3% in the coming year. It is worth noting that Palantir was trading above that median price target before its earnings report came out.
NASDAQ: PLTR
Key Data Points
So, analysts don't seem to be very upbeat about this AI stock's prospects in the coming year. Moreover, only a quarter of the 29 analysts covering the stock suggest buying it right now. The majority -- 62% -- rate Palantir as a hold (at the time of this writing).
It is easy to see why Palantir isn't expected to sustain its red-hot rally in the coming year. The stock is trading at 127 times sales, 450 times trailing earnings, and 206 times forward earnings. So, investors who want to buy this stock right now will have to pay a huge premium. That may not seem like a smart move, as there are companies with impressive growth rates available at cheaper valuations.
But what if you're currently a Palantir shareholder? You may be thinking of selling the stock and booking profits, especially considering that the market wasn't impressed by the company's better-than-expected financials and improved guidance -- factors that should have ideally acted as a catalyst. However, selling Palantir may not be a smart move.
There is a good chance that the stock could regain its mojo in the coming year. Let's see why that's likely to be the case.
The market seems to be underestimating Palantir's potential
There is no denying the fact that Palantir is extremely expensive right now. However, the company's valuation doesn't entirely capture its remarkable growth potential.
Palantir reported a 63% year-over-year increase in revenue in the third quarter to $1.18 billion. That's a big improvement over the 39% and 48% jumps the company reported in the first two quarters of the year. The company's guidance of $1.33 billion in revenue in the current quarter points toward a potential jump of 61% from the year-ago period.
Palantir, however, has a big-enough backlog that should allow it to easily clock much faster growth. It ended the previous quarter with a massive $8.6 billion in remaining deal value (RDV), up by 91% from the prior year. This metric refers to the total value of Palantir's unfulfilled contracts at the end of a period, and it provides an insight into the company's future revenue-generating ability.
The good part is that Palantir's RDV growth has been picking up impressively in recent quarters, and that's also having a positive impact on the company's top line. This can be seen in the table below.
|
Period |
Remaining deal value (in $, billions) |
Year-over-year growth |
Revenue (in $, millions) |
Year-over-year growth |
|---|---|---|---|---|
|
Q4 2024 |
$5.4 |
40% |
$828 |
36% |
|
Q1 2025 |
$6 |
45% |
$884 |
39% |
|
Q2 2025 |
$7.1 |
65% |
$1,004 |
48% |
|
Q3 2025 |
$8.6 |
91% |
$1,181 |
63% |
Data source: Palantir's quarterly reports and earnings call transcripts.
Even better, Palantir's earnings growth has accelerated significantly, owing to the larger contracts that the company is now signing with customers. Its non-GAAP (generally accepted accounting principles) earnings shot up by 110% year over year in the previous quarter to $0.21 per share, a massive improvement over the 43% growth it clocked in the same period last year.
As such, it won't be surprising to see Palantir delivering a much bigger jump in earnings in 2026, as compared to the 36% jump that analysts are estimating. Palantir is expected to end 2025 with $0.72 per share in earnings, an increase of 76% from last year. Of course, there is a good chance that it could do better than that, thanks to its fast-growing contract backlog that's boosting its top- and bottom-line growth.
Moreover, Palantir can replicate its growth trajectory in 2026. I won't be surprised to see it doubling its bottom line next year. That could give the stock a nice shot in the arm and help it deliver much bigger gains than Wall Street's 12-month median price target. There is a good chance that Palantir could approach its Street-high price target of $255 in the coming year, which points toward 32% gains from current levels.
As such, Palantir investors will do well to stop panicking and continue holding this AI stock in their portfolios, as a significant acceleration in its earnings growth is likely to translate into more upside in the coming year.
