Palantir (PLTR +1.25%) stock has been one of the top performers since the AI scramble kicked off in 2023. It's up more than 2,000% since then, but it was much higher before its recent sell-off.
Now the stock is down around 35% from its all-time high, and it has investors asking if now is the perfect opportunity to get in on a stock they may have missed or add more to an already successful pick.
Let's take a look at Palantir and why it's down, then see if it's a buy in March.
Image source: Getty Images.
Palantir's tumble is tied to its valuation
It's hard to find a fault in the execution of Palantir's business model. The company's platform is becoming a top way to integrate AI into a business, as it helps reveal insights using massive datasets that humans could never interpret by themselves. Originally, this software was designed for government use, but it is seeing rapid adoption by the commercial sector, especially in the U.S.
NASDAQ: PLTR
Key Data Points
Palantir's growth rates are absolutely absurd, and it posted strong fourth-quarter results with total revenue growing 70% year over year to $1.4 billion. Its strongest segment, unsurprisingly, was U.S. commercial revenue, which increased 137% year over year.
Palantir is clearly a leader in the AI application space, making it an easy pick, as it isn't subject to the massive data center spending going on with big tech. Palantir's software is here to stay, and because it uses a subscription model, it has a continuous revenue stream.
This is an incredibly attractive investment, but is the price right?
Palantir's decline has nothing to do with its product or business success. Each of those two is about as good as anyone could hope for. The problem is that the price tag attached to Palatnir's stock is jaw-dropping.
PLTR PE Ratio (Forward) data by YCharts
The stock trades at more than 100 times forward earnings, a precarious valuation level. That indicates massive growth expectations built into the stock not only for 2026, but also several years after.
Investors must ask themselves how long they think Palantir can sustain its rapid growth rate. There's clearly a benefit to Palantir's software, which is why it's growing so popular. But it's hard to imagine a company that is waiting until 2026 to deploy AI. While Palantir's customer base is still growing, how many more clients are out there?
If Palantir can continue finding clients and grow its revenue rapidly for five years, then today's price may be worth it. However, if its growth starts to taper off at the end of 2026, then it's likely too expensive at today's level.
Investors must use their best judgment to decide if today's price is worth paying. It all boils down to future growth, and if you think Palantir can deliver, today's price could be a steal.
