Business is booming for Palantir Technologies (PLTR +2.82%), as revenue grew 70% year over year to $1.4 billion in the fourth quarter of 2025. Despite that, the company's share price has fallen by 29% since peaking at $207 on Nov. 3, 2025.
The cause of that decline is primarily Palantir's high valuation, a key factor investors and prospective investors should know about.
Image source: The Motley Fool.
With a $353 billion market cap, Palantir trades at 233 times trailing earnings as of March 26. To compare that with a few other software companies, Microsoft and International Business Machines trade at 23 and 22 times trailing earnings, respectively. You're effectively paying over 10 times as much per $1 of earnings with Palantir as you would with either of those businesses.
It'd be easy to discard Palantir as an overhyped artificial intelligence (AI) stock, but in reality, it's an innovative company that takes a unique approach to data analytics. Palantir uses ontologies -- visual representations of an organization's data -- that, combined with analytical and operational tools, improve decision-making. It also offers an Artificial Intelligence Platform (AIP) that lets organizations deploy large language models and AI agents within their private networks.
Palantir is also serving an increasingly significant role with the Department of Defense. Last year, it landed a contract with the U.S. Army worth up to $10 billion over the next decade. Earlier this month, the Pentagon made Palantir's Maven system an official program of record, streamlining adoption throughout the U.S. military.
NASDAQ: PLTR
Key Data Points
Palantir has delivered impressive growth, and its defense contracts have positioned it well for future success. However, investors should know that at such a staggering valuation, execution needs to be near perfect for the company to keep up with its share price.
