After a huge run in 2025, Palantir Technologies (PLTR 1.06%) shares have started 2026 on a weaker note. Shares are down about 7% year to date.
For now, investors seem to be questioning the stock's extraordinarily high valuation. The AI (artificial intelligence)-powered data and analytics platform provider is priced not just for sustained growth -- but for sustained extraordinary growth. The problem with this thesis, however, is its flipside: Shares could get crushed if any evidence of a material slowdown surfaces.
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Mind-boggling growth
For now, Palantir's growth profile is staggering, with customers eagerly adopting the company's Artificial Intelligence Platform (AIP) to streamline and transform their businesses and organizations. Its fiscal third-quarter revenue grew 63% year over year -- a huge acceleration from 48% year-over-year growth in fiscal Q2.
NASDAQ: PLTR
Key Data Points
The company's momentum in U.S. commercial revenue, as Palantir diversifies away from its heavy reliance on the U.S. government, is a big part of the story behind the company's accelerated pace. In fiscal Q3, Palantir said U.S. commercial revenue grew 121% year over year -- up from a growth rate of 93% in fiscal Q2.
"These results make undeniable the transformational impact of using AIP to compound AI leverage," said Palantir co-founder and CEO Alex Karp in the company's fiscal third-quarter earnings release.
Learning from Snowflake
While it's easy to get excited about results like this. Palantir isn't the first data platform business to report such extraordinary results. Consider AI data cloud business Snowflake (SNOW +0.70%), which operates a very similar business model. There was a time when it was growing its revenue even faster than Palantir. Indeed, in Snowflake's third quarter of fiscal 2021, product revenue grew 115% year over year to $148.5 million. But this growth rate wasn't sustainable, and it's come down substantially. In its third quarter of fiscal 2026, for instance, Snowflake's product revenue grew 29% year over year to $1.16 billion. This is still an impressive growth rate, but far below the triple-digit growth the company was delivering for shareholders five years ago.
In total, Snowflake's sales growth over those five years was incredible, with its fiscal third-quarter revenue rising nearly eightfold over that period. But as the company's growth rates came down, so did investor expectations. Over the last five years, the stock has fallen 24% while the S&P 500 has risen 81%.
NYSE: SNOW
Key Data Points
Of course, Palantir is a different breed of growth stock, posting revenue growth rates in the 60s in a quarter when it generated nearly $1.2 billion in revenue. Growing at such a high rate off of such a large base is incredible.
Still, investors should take note of how Snowflake fell from grace. If Palantir's growth rates start slowing, investors could similarly become less willing to pay such a high valuation for the stock.
However, if a meaningful slowdown is coming for Palantir, it won't likely come in fiscal Q4. The midpoint of the company's guidance range implies a year-over-year growth rate of more than 60%. And the company has a habit of beating its guidance, so the actual growth rate will likely be higher -- and possibly even above the growth it posted in fiscal Q3.
Price matters
But when Palantir's revenue growth does finally slow, the big question is whether the stock can continue to justify its valuation. As of this writing, the tech company's stock trades at a forward price-to-earnings ratio of 167. Measuring a company's value as a multiple of analysts' average forecast for earnings per share over the next 12 months, a forward price-to-earnings ratio this high suggests the stock is priced for more strong revenue growth and significant margin expansion over the long haul. More specifically, I believe Palantir's revenue will need to compound at an average rate of 30% and earnings at an even faster rate over the next five years for the stock to even earn a decent return from its current valuation.
With all of this said, I love Palantir's business. I think it's exceptional, and its performance should be studied and even applauded. At the stock's current valuation, however, there's no room for error. For that reason, I wouldn't be surprised if the stock hit even lower levels at some point this year. Of course, it's impossible to know how a stock will move in the short term. But I do think it's fair to say that buying this stock at this price is risky.
