There's no two ways about it: Palantir Technologies (PLTR +1.87%) is a battleground stock. Bulls argue that the company's proprietary artificial intelligence (AI)-infused decision-making matrix -- dubbed Ontology -- has no real competition, which is driving Palantir's blistering sales growth. Bears argue that the stock's egregious valuation is simply unsustainable, which has fueled the stock's recent declines -- and it could have further to fall.
Both arguments have merit. The artificial intelligence (AI) specialist rode the wave of AI adoption to heights, with the stock soaring more than 3,000% between early 2023 and late 2025. Since its peak in early November, however, Palantir has plunged roughly 35%.
However, I predict the company's impressive growth and its moderating valuation will fuel impressive stock price gains over the next couple of years.
Image source: Getty Images.
What's driving the financial performance?
Palantir has a long history of creating AI systems for U.S. intelligence, military, and law enforcement agencies. The company's unbridled success fueled the decision to adapt its tools for commercial enterprises. Palantir developed Ontology, a process for mapping its AI across a company's siloed data and physical operations.
By compiling this data into a knowledge graph, Palantir's AI systems provide near-real-time solutions to everyday business problems -- leveraging the organization's own data to inform its decisions. The company's Artificial Intelligence Platform (AIP) provides managers with actionable insights, enabling them to make critical business decisions based on data. Users get measurable value from Palantir's solutions, which keeps customers coming back for more.
Don't take my word for it. In the first quarter, Palantir generated revenue that soared 85% year over year and 16% quarter over quarter to $1.63 billion, the company's highest-ever year-over-year growth rate and the 11th consecutive quarter of accelerating revenue growth. Its profitability also surged, as adjusted earnings per share (EPS) jumped 154% to $0.33.
The highlight was the U.S. commercial segment, with revenue up 133% to $595 million. The government segment played its part, generating revenue that grew 84% to $687 million.
This shows that Palantir's recent stock price decline was unrelated to its operating and financial results, which were superb.
NASDAQ: PLTR
Key Data Points
The mathematical path forward
Using Palantir's most recent growth rate and Wall Street's expectations can provide an estimate regarding where Palantir's stock price could be by the end of next year -- though we'll have to make a few assumptions.
Palantir's full fiscal 2026 forecast is for revenue of $7.66 billion at the midpoint of its guidance, which would represent year-over-year growth of 71%. The company hasn't released a forecast for 2027, but Wall Street's consensus estimate is $11.22 billion, representing about 46% growth.
One of the hallmarks of Palantir's recent growth has been its expanding profit margin, currently about 53%. Let's be conservative and assume it doesn't expand any further through the end of next year (though history suggests it will). If Palantir generates revenue of $11.22 billion in 2027 with a 53% profit margin, that would put net income at roughly $5.95 billion and EPS of $2.31, using its current share count of 2.57 billion.
If Palantir's valuation remains constant at 152 times earnings, the stock price would rise 161% to $352 -- driving Palantir's market cap to $904 billion.
Fun with numbers
To be clear, this is only a thought exercise, arriving at one possible scenario. Change any of the underlying assumptions, and the results could be dramatically different.
If Palantir's growth continues to accelerate, investors might continue to assign a generous valuation. If that growth were to moderate, investors might rethink its frothy multiple, which could send the stock plunging.
Despite the stock's recent reset, Palantir still trades at a premium valuation of 152 times earnings, as highlighted above. However, some investors question the use of the price-to-earnings ratio, particularly for a company with near-triple-digit top-line growth. Employing the more appropriate price/earnings-to-growth (PEG) ratio returns a multiple of 0.53, when any number less than 1 is the standard for an undervalue stock.
Given the company's accelerating growth and strong track record of execution, I would argue that Palantir stock is a buy -- especially at a 35% discount.
