With shares trading up by almost 172% over the last 12 months, Palantir Technologies (PLTR +1.25%) was one of 2025's biggest winners in the generative artificial intelligence (AI) software space. While the company's unique brand of technology-led patriotism has attracted its fair share of criticism and controversy, it has also earned Palantir a cult following, which has likely contributed to its explosive near-term growth.
Let's dig deeper to find out if the rally can continue in 2026 and beyond.
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Why did Palantir stock surge?
While Palantir Technologies only recently became a household name in investing circles, the company is not new. Since its founding in 2003, Palantir has provided big data analytics services to high-profile clients like the U.S. Department of Defense and the CIA. It is even believed to have helped track down Osama bin Laden during the war on terror and assisted the first Trump administration with undocumented migrant interdiction and deportation.
At their core, Palantir's software-as-a-service (SaaS) offerings are designed to comb through vast amounts of data to identify trends and patterns that can help guide an organization's decision-making. Generative AI made this process faster and more accessible for users, enabling operators to access insights in real time with simple prompts.
Palantir launched its Artificial Intelligence Platform (AIP) on April 7, 2023. The fact that shares have rocketed by over 2,000% since that date suggests the market believes the new generative AI functionality will be a game-changer for the company. There have already been significant impacts.
Business is booming
Palantir's third-quarter earnings were impressive. Revenue jumped 77% year over year to $883 million. But perhaps surprisingly, this was driven mainly by U.S. commercial clients instead of the government contracting that the company is typically known for. The U.S. commercial business surged by 121% year over year to $397 million, or 44% of the total, and it is on track to represent the majority of Palantir's top line by the next few quarters.
Palantir's increasing reliance on commercial clients is driving substantial growth. Still, the trend might be a cause for concern because it makes the company much more vulnerable to competition from other tech giants.
Historically, Palantir's economic moat came from its close relationship with the government. After all, it was partially funded by the CIA's venture capital arm, In-Q-Tel, and it has a track record of handling sensitive classified information. A substantial portion of its workforce likely has security clearances. And it has proven to be resistant to internal employee pressure related to controversial military-related contracts, such as the U.S. Army's Maven Smart System deal previously abandoned by Alphabet's Google.
However, when it comes to commercial data analytics, many of these advantages go out the window. Palantir is far from the only company capable of providing enterprise data analytics tools, and it competes with large rivals like Snowflake and Microsoft Fabric. Palantir also doesn't seem to have any edge in large language models (LLMs), and its AIP is actually designed to be integrated with the client's choice of third-party LLMs such as Grok, ChatGPT, Claude, and others.
NASDAQ: PLTR
Key Data Points
Palantir's valuation is still way too high for comfort
Palantir is one of the biggest winners in the AI software opportunity. And it isn't surprising to see its stock performing well. That said, a great company isn't always a great investment. And in Palantir's case, the optimism seems to have become somewhat detached from reality.
With a forward price-to-earnings (P/E) ratio of 173, the stock trades at an eye-watering premium over the S&P 500 average of just 22. And the company doesn't seem to have any "secret sauce" that would justify such a high valuation. While Palantir's healthy growth and cult following mean a crash is unlikely, shares look likely to flatline in 2026 and possibly beyond until earnings catch up with the inflated expectations.
