After Earnings, Is Palantir Stock a Buy, a Sell, or Fairly Valued?

This quarter’s results highlight Palantir’s exemplary execution and continued penetration of the US commercial market, with 73% more US customers than a year ago and 63% growth in US commercial revenue year over year. US Government revenue remains sticky, growing a robust 45% year over year, with a potential second-half 2025 tailwind from the Department of Government Efficiency as it looks to slim down government budgets.

We are witnessing increasing adoption of the artificial intelligence platform, which is acting as a revenue accelerant since it can utilize any large language model to ultimately drive productivity gains and democratize machine learning for non-technical users across organizations. While most of this customer and revenue acceleration is driven by US enterprises, even a fraction of this growth replicated in Western Europe could provide additional upside to our valuation.

We continue to view switching costs as a key moat source as customers adopt Palantir’s software and deepen their investment through various add-on opportunities. This is reflected in net revenue retention which now hovers around 120% and continued an upward trend quarter over quarter.

This quarter’s results further reinforce our conclusion that we are in the early stages of an AI arms race, where most of the economic value is flowing downstream—both to software companies that make AI “work” and to enterprises leveraging AI for productivity gains. We continue to believe that Palantir’s best days are ahead and that the company has a significant runway for its bull case to emerge.

Palantir Technologies Stock Price

Source: Morningstar Direct.

Fair Value Estimate for Palantir

With its 3-star rating, we believe Palantir’s stock is fairly valued compared with our long-term fair value estimate of $90 per share, which implies a 2025 enterprise value/sales multiple of 52 times. In our opinion, the primary driver of the stock’s value is the total addressable market Palantir’s software can ultimately serve. TAM size is truly a trillion-dollar question that is unfortunately laden with assumptions. Our base case has Palantir’s TAM growing to $1.4 trillion by 2033. From today, we assume growth is non-linear, with an inflection higher from 2028-30 to rates nearing 40% per year. Our analysis concludes that we are in the early innings of an AI revolution.

In our base case, we expect Palantir to have a growth profile similar to that of innovative software companies like Salesforce CRM in the late 2010s. Salesforce was able to drive efficiency by creating a standardized workflow and logging process for enterprises accustomed to bloated sales teams compiling data in disparate locations. We expect Palantir to similarly drive efficiency amongst enterprises that now lean on large information technology teams that interpret and present data to assist in decision-making.

Read more about Palantir Technologies’ fair value estimate.

Palantir Technologies Stock vs. Morningstar Fair Value Estimate

Source: Morningstar Direct.

Economic Moat Rating

We believe Palantir warrants a narrow moat rating, based on switching costs and intangible assets. It differentiates itself as the only AI company with a framework that organizes disparate datasets and facilitates optimized decision-making. This machine-learning framework that identifies opaque yet significant relationships in data and translates solutions to the end user is referred to as the “ontology framework.” Palantir engineers a read-write feedback loop that enables connectivity throughout a business, creating an accessible analytical framework to drive nuanced decision-making that improves over time.

Palantir often competes against internal information technology departments because it also analyzes data and creates information dashboards for interpretation. This traditional in-house IT and data aggregation framework often results in patchwork solutions that are cumbersome, difficult to improve, and costly to scale.

Read more about Palantir Technologies’ economic moat.

Financial Strength

We view Palantir’s financial position as healthy and improving. As of December, it had nearly $2 billion in cash and $3.1 billion in marketable securities (mostly US Treasury securities) and no debt. Its liquidity position improved by $1.5 billion in 2024. Palantir now has two full years of GAAP profitability under its belt, with 2024 over twice as profitable as 2023, and we expect rapid growth and profitability to continue.

Read more about Palantir Technologies’ financial strength.

Risk and Uncertainty

We assign Palantir a Very High Uncertainty Rating. The company’s biggest uncertainty is the broad potential size of the TAM its software can serve and the level of customer penetration it can achieve. We like the versatility of the ontology framework that makes Palantir software valuable to almost any company. This versatility creates significant upside potential. Unfortunately, because the TAM estimate is so uncertain and is one of the largest drivers of the stock’s valuation, downward share price corrections can be severe and painful when there is an unfavorable change in investors’ perception of future market size. We have modeled multiple scenarios for future demand, and the resulting range of valuations is extreme, illustrating the massive uncertainty investors face. If our bear case on TAM emerges, the shares will likely prove worth far less than we expect.

Read more about Palantir Technologies’ risk and uncertainty.

PLTR Bulls Say

• Palantir has developed the premier AI software, primed to take advantage of the trend toward digitization and automation. AI software maintains a strategic position on the AI value chain.

• Palantir’s ontology framework and AI orchestration allow for the democratization of machine learning. Its software is useful to employees at all levels of a business to drive efficiency enhancements.

• The new boot-camp-style sales effort has allowed Palantir to achieve rapid growth in the US commercial segment. The US commercial business has a large total addressable market.

PLTR Bears Say

• Palantir’s end markets are confined to entities that coalesce with Western ethos. This caps the total addressable market.

• The decreasing cost of AI inference and the convergence of LLMs will result in lower barriers to entry in the AI decision-making software industry that Palantir currently dominates.

• Palantir’s dual-class share structure opens the door for overzealous noncore investment opportunities without common shareholders' checks and balances.

This article was compiled by Gautami Thombare.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.