Palantir Technologies (PLTR +1.25%) has been an unstoppable tech stock to own in recent years. The data analytics company has generated incredible growth due to artificial intelligence (AI) as businesses look to add efficiency to their operations, which is what its platform helps them do. Palantir has delivered fantastic results in recent quarters, enabling its investors to profit from considerable gains.
In just three years, the stock has skyrocketed by around 2,400% in value. Its market cap topped $400 billion entering trading this week, making it among the most valuable companies in the world and more valuable than many other blue chip stocks.
On Feb. 2, the company is expected to release its fourth-quarter earnings, wrapping up what's likely to be a strong finish to the past year. Should you buy shares of Palantir before its latest earnings numbers come out?
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Does Palantir's stock normally rise after earnings?
Palantir hasn't been a cheap stock to own in recent years, but with continually strong numbers, it has been able to win over retail investors. However, when it last reported earnings in November, the stock was already at an all-time high of $207.52. And in the days that followed its seemingly impressive results, it would go on to fall, despite management saying the company was "crushing consensus expectations."
Palantir's stock has generally done well after reporting earnings, as is evident in the chart. The most recent decline, however, could be a sign that perhaps there could be limits to what investors are willing to pay for Palantir, even amid strong results.
Currently, the stock is trading at a price-to-earnings multiple of around 400. While that's technically lower than what it has been in the past, it's still an incredibly high valuation, which effectively prices in sky-high expectations from the company. Perhaps the company will have to do more than just "crush" expectations when it posts earnings in February for it to rise in value.
Expectations for continued AI spending could make or break the stock
For Palantir to continue to justify a high valuation, investors will likely need to see the company's guidance remain strong. As long as the expectations and future growth look incredibly promising, there may continue to be a strong appetite from investors for the AI stock.
The good news is that spending on AI may remain strong for the foreseeable future. Research company Gartner recently predicted that 60% of brands will deploy agentic AI by 2028 in an effort to streamline interactions. Agentic AI is an emerging opportunity in tech, and Palantir has an AIP agent studio, which can help build agents to automate processes and interactions.
While there may be worries that AI spending may peak and companies will curb their AI investments, that doesn't appear to be happening just yet. In fact, demand may remain high for AI-related products and services in the years ahead, which could be great news for Palantir investors.
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Why I wouldn't rush to buy Palantir's stock
Palantir is performing exceptionally well. The business generated 63% revenue growth in its most recent quarter, and it continues to expect to do well.
However, that doesn't mean that the stock is a good buy at any price. Valuation matters, and ignoring it can leave investors vulnerable to steep losses because, as good as a business may be, that doesn't mean it's justifiable to pay a 400 times earnings multiple for it.
There are many other AI stocks out there to choose from that are priced at much more reasonable valuations than Palantir, and which can be better buys today. With such a high price tag, there's simply too much hype priced into Palantir to make it an attractive buy heading into earnings.
