After languishing in the first few years following its 2020 initial public offering, Palantir Technologies (PLTR +2.53%) stock got a shot in the arm from the arrival and proliferation of generative artificial intelligence (AI) in late 2022. Over the last three years, the company has seen its share price jump by 1,040% -- enough to turn an initial investment of $10,000 into an impressive $114,000 position.
That said, Palantir's stock price has been oscillating sideways and generally downward in 2026, and optimism seems to be fading. Let's dig deeper to find out what might be causing this change in market sentiment and consider if the company still has millionaire-maker potential over the long term.
NASDAQ: PLTR
Key Data Points
Why Palantir?
Since its founding in 2003, Palantir has evolved into a leader in big data analytics -- the process of sifting through vast volumes of data to uncover actionable insights. The company's software is useful in the private sector, where it helps enterprise clients detect fraud and optimize their supply chains. It also serves military, intelligence, and law enforcement clients with tasks like intelligence analysis and targeting.
The newer iterations of AI provide a tremendous synergy with Palantir's legacy data analytics businesses because large language models (LLMs) are designed to parse large quantities of information -- the more targeted, the better. These algorithms also allow users to interact with complex datasets through natural language prompts, making the process faster and more accessible to operators who lack advanced training.
Palantir has created its own Artificial Intelligence Platform (AIP), designed to integrate third-party models (including ChatGPT and Claude) with its proprietary data analytics infrastructure. This strategy allows it to offer the latest AI capabilities to its clients while bypassing the immense costs of developing and running its own LLMs in-house.
Business is booming
Palantir has cracked the code of successfully offering enterprise AI at scale, and the company's first-quarter results reflect the rapid adoption of its services. Revenue soared by 85% year over year to $1.63 billion, with particular strength in the company's U.S. commercial segment, which jumped by 133%.
Palantir's government contracting business is also doing quite well. This month, the company secured a $300 million contract with the U.S. Department of Agriculture to help manage farmland data. This deal followed other recent agreements with the Israeli Defense Force, the U.S. Department of Defense, and the North Atlantic Treaty Organization to enhance battlefield intelligence capabilities.
Image source: Getty Images.
That said, while these high-profile contracts may boost Palantir's near-term growth and prestige, they aren't without risks. The company has become a lightning rod for criticism of government surveillance and the ethics of using AI tools in war and law enforcement. It is also associated with the increasingly unpopular Trump administration, which could lead to brand damage and related business risks, particularly in future administrations.
Tesla offers a good example of how damaging partisan political exposure can be. The electric vehicle giant's sales sank substantially in recent years, in part due to consumer backlash over CEO Elon Musk's involvement in the 2024 election campaign and the first year of the Trump administration. And while Palantir doesn't sell its services to consumers, business clients can be swayed by pressure from employees, their customers, or the public at large, if that pressure is intense enough.
Palantir is growing into its valuation
The greatest headwind for Palantir stock is its valuation. With a market cap of $343 billion, the stock trades for roughly 161 times its previous 12-month earnings, which is much more than the S&P 500 (^GSPC +1.18%) average of 26. While the stock deserves some premium due to the company's above-average growth, this is far too high to make sense -- especially given the political risks Palantir could face in the coming years.
While Palantir remains a great business, its stock performance will probably trend mostly sideways until its top and bottom lines grow into the market cap it already boasts. Shares will start to look much more interesting at a price-to-earnings ratio of 50.
