Let's just cut to the chase. Palantir (PLTR 1.51%) stock still looks overvalued, and I'm still not buying.
But why? After all, the artificial intelligence data and analytics platform company reported extraordinary fourth-quarter results, featuring a 70% year-over-year increase in revenue. Even more, the midpoint of the company's guidance implies even faster revenue growth in the first quarter of 2026. And what is Palantir management saying? The company is "in the middle of a tectonic shift" in the adoption of its software.
So, why wouldn't I like a stock like this?
The problem boils down to valuation. The stock is simply priced for perfection, leaving essentially no room for error -- and not even enough room for a natural deceleration in the company's growth over the next 5 years.
Image source: Getty Images.
Before we dive into more details, let me make one more thing clear: saying the stock is not attractive is not a critique of the management team or the business itself. This is a great business, and the company is executing exceptionally well. But sometimes when companies are at the center of the market's most exciting investment theme, the best-performing companies can see their stocks soar a bit too far. This is what happened to Palantir. Even after the growth stock's recent pullback, shares are up more than 1,600% over the past three years.
Accelerating growth
Palantir's revenue isn't just growing fast; it's accelerating. The year-over-year revenue growth rates for Palantir in the first, second, third, and fourth quarters of 2025 were 39%, 48%, 63%, and 70%, respectively. With a top-line trend like this, it's easy to see why investors love this business.
Making the company's recent performance even more impressive, Palantir's profitability has inflected recently. Palantir's net income in 2025, for instance, rose more than 250% year over year to $1.625 billion.
But what if growth slows?
The problem, however, is that the stock's price-to-earnings ratio of more than 200 as of this writing prices in more strong growth like this for years to come.
To provide more perspective on the stock's valuation, consider its market capitalization. As of this writing, Palantir commands a market capitalization of more than $306 billion despite trailing-12-month sales and net income of approximately $4.5 billion and $1.6 billion, respectively. The gap between Palantir's market capitalization and its underlying fundamentals is a chasm.
NASDAQ: PLTR
Key Data Points
Even when you take the stock's price as a multiple of analysts' consensus earnings-per-share forecast over the next 12 months, shares are expensive. The stock's forward price-to-earnings ratio is about 110 as of this writing.
A valuation like this could be a disaster waiting to happen if the company's growth starts to slow. And while Palantir's first-quarter guidance suggests a slowdown won't occur anytime soon, it could be on the horizon. Just look at Palantir's decelerating growth rate in its total contract value (TCV), or the potential lifetime value of its customer contracts. The company closed $4.3 billion worth of TCV in Q4. This was up 138% year over year -- a slowdown from 151% growth in Q3.
Of course, it's not like this 138% growth in closed TCV during Q4 is poor performance. Management should be extremely proud of this performance. But if closed TCV continues to decelerate throughout 2026, it could signal slower revenue growth.
Overall, Palantir's business continues to fire on all cylinders. But there's a price for everything, and the price for Palantir stock arguably remains egregious. While it's always possible that Palantir delivers the extraordinary growth required to justify its valuation and still reward shareholders with attractive returns from here, I don't think the risk is worth it at the stock's current price.
