What’s Happening With Palantir Stock?

At its peak on Feb. 18, Palantir shares had surged 65% in 2025 alone, with a 23% single-day jump following the company’s blockbuster earnings report on Feb. 3. However, a confluence of events, including news that the company’s chief executive is planning to sell upward of $1 billion worth of stock and warnings about cutbacks in government spending (on which the firm heavily relies), sent shares into a tailspin.

Morningstar equity analyst Mark Giarelli believes Palantir holds the potential for continued strong growth, and he says that after its big decline, the stock is trading in fairly valued territory. However, he stresses that the stock’s trajectory is subject to wide swings as investors continually assess the total addressable market for Palantir’s analytical software products. This recent volatility warns investors to consider their risk tolerance and choose entry points carefully.

Palantir’s AI Trade Rally

Palantir has been a leader among publicly traded companies in offering products grounded in AI technologies. Founded in 2003, it went public in 2020. Many of its clients are Western governments. “Palantir has been a darling of the AI trade since it started in the first quarter of 2023, but this went into hyperdrive over the past two quarters,” Giarelli says.

While the AI trade was initially focused on semiconductor makers (most notably Nvidia NVDA), during the third quarter of 2024, “we started to see a narrative emerge where software companies were going to be the ‘next leg’ of the AI trade,” Giarelli explains. At the time, there were growing expectations of commoditization within the physical supply chain for developing AI models. “As such, the economic value started flowing downstream to companies that ‘actually make AI work.’ Palantir is positioned perfectly for this because their ontological framework provides large language models with the necessary context for actionable insights and optimized decision-making.”

Then Palantir’s earnings for the fourth quarter of 2024 blew past expectations for revenue growth and margins. In particular, it showed strong growth among US commercial clients. “This is a company that prides itself in driving US exceptionalism, and this earnings report was proof in the pudding,” Giarelli says. “The stock absolutely ripped from around $75 to $120.” By the end of 2024, the stock was up some 340% in a year, while the Morningstar US Technology Index had gained just over 31%.

The rally continued into this year. After the company reported earnings on Feb. 3—showing 73% more US customers than a year ago and 63% growth in US commercial revenue year over year—the stock rocketed higher. It hit its most recent all-time high closing peak of $124.62 on Feb. 18.

Why Is Palantir Falling?

As quickly as the stock rallied, its shares have now given back nearly all the gains posted since Feb. 3. One spark for the selloff was news that CEO and cofounder Alex Karp was looking to sell upward of 10 million shares after he’d already made heavy sales of the stock in 2024. At the same time, reports indicated that US Secretary of Defense Pete Hegseth directed Pentagon officials to ready plans for slashing the defense budget by 8% annually over the next five years.

“It was a double whammy,” Giarelli says. “This likely spooked investors, because 40% of Palantir’s revenue comes from US government contracts, and no one likes to see the CEO sell off shares.”

Some have theorized that the wide swings reflect heavy ownership among actively trading individual investors rather than big institutional investors, such as mutual funds and pension funds, which are assumed to have longer time horizons. However, Giarelli thinks this may be changing. “Retail versus institutional ownership is a hot-button issue,” he says. In 2021, it was estimated that individuals held some 60% of Palantir stock, with institutions at less than a quarter and insiders holding the rest. Now estimates suggest that ownership is evenly split between individuals and institutions, with BlackRock and Vanguard among the big shareholders.

Palantir Technologies Stock Price

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What’s the Outlook for Palantir?

Giarelli calls himself “a huge fan of the stock” from a fundamental standpoint. Morningstar assigns Palantir a narrow moat rating, meaning it has durable competitive advantages it can sustain for the coming decade. That rating is based on the company’s intangible assets, such as its complex machine learning tools, as well as its high switching costs, which translate into strong customer retention.

Regarding concerns about a pullback in government spending, Giarelli sees positives and negatives for Palantir. On the negative side, political pressures are building for government spending to decline. However, he says, “there is no software company better equipped than Palantir to drive the cost efficiency gains” for government spending.

For Giarelli, what’s most important are the expectations for the total addressable market for Palantir’s products and its penetration of that market. “Those are the biggest drivers of the stock, and any investor needs to think about that.”

The potential total addressable market is massive, but so is the range of outcomes. Giarelli says that anywhere from $1.2 trillion to $1.8 trillion is possible. Morningstar’s base case is a TAM of $1.4 trillion. Given the scale involved, “$1.5 trillion vs $1.8 trillion vs $1.2 trillion makes a huge difference,” he says.

Giarelli is optimistic about Palantir’s potential to penetrate this massive market. He likens its potential to Oracle ORCL in the 2010s and Salesforce CRM in the late 2010s and early 2020s, “but faster.” His model calls for Palantir to post annual revenue of $40 billion by 2034, which would equal roughly a 10-year compounded annual growth rate of 34%. He believes this is realistic, “considering the company’s trajectory and structural tailwinds toward agentic solutions that make AI work.”

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

While Palantir’s growth prospects may be strong, valuation is a critical variable for long-term investors. Giarelli pegs the stock’s fair value at $90 per share, which makes it a 3-star stock. “I believe the stock is fairly valued at the moment and investors at $90 are likely to receive a fair risk-adjusted return near the cost of equity,” he says. He notes that when viewed on other metrics, such as enterprise value to revenue, the stock looks “really expensive.”

Investors should also consider the stock’s volatility. “Not all investments are suitable for all investors,” he says. “Investors in Palantir should expect a moderate to high level of volatility because TAM and penetration expectations are repriced frequently, and this gets reflected in the market price, whether good or bad for the owner. That said, if you are bullish on secular tailwinds and believe the TAM is large, it is very possible the bull case emerges.” Such an outcome could take the stock north of $200 per share. “Alternatively, there could be an additional downside if the TAM and penetration disappoint.”

With the stock’s Very High Uncertainty Rating, the bands for its star rating are quite wide. Palantir would need to fall below $72.40 per share before it landed in undervalued territory. But Giarelli says that, given the current outlook, should Palantir become a 4-star stock, investors should “buy the heck out of it.”

The following are highlights of Giarelli’s outlook for Palantir and its stock. The full report and more of his coverage are available here.

Fair Value Estimate and Profit Drivers

Our fair value estimate of $90 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 nonlinear, 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 in the late 2010s. Salesforce was able to drive efficiency by creating a standardized workflow and logging process for enterprises that were accustomed to bloated sales teams compiling data in disparate locations. We expect Palantir to similarly drive efficiency among enterprises that now lean on large information technology teams that interpret and present data to assist in decision-making.

Find more of Giarelli’s analysis of Palantir’s fair value estimate here.

Palantir Technologies Stock vs. Morningstar Fair Value Estimate

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Economic Moat

We believe Palantir warrants a narrow moat rating, based on switching costs and intangible assets. Companies like AWS, Snowflake, and ServiceNow have developed data analytics tools, but Palantir 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.

Find more of Giarelli’s analysis of Palantir’s economic moat here.

Risk and Uncertainty

We assign Palantir a Very High Morningstar Uncertainty Rating. The company’s biggest uncertainty is the broad potential size of the total addressable market, or TAM, that 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.

Find more of Giarelli’s analysis of Palantir’s risk and uncertainty here.

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.

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