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With a YTD gain of 145%, Palantir (PLTR) ranks among the top 5 best-performing S&P 500 Index ($SPX) constituents of 2024. Incidentally, the company only joined the world’s most popular index last month, after a rebalancing. While some experts have frowned at the steep valuations that PLTR commands, the stock has only been going higher. In this article, we’ll look at Palantir’s 2025 forecast and see what analysts expect from the company.
Palantir Technologies is a data analytics company that works both with governments and private enterprises. It is also an artificial intelligence (AI) play, and the global pivot to AI has been lifting the demand for its services. With data rightly being termed as the “new oil,” Palantir is among the most consequential companies in the ecosystem.
From data analytics to cybersecurity and generative AI, Palantir’s business ticks all the right boxes for the market's favorite high-growth industries. These are also, notably, the segments for which investors are willing to pay a premium.
The company works with several Western governments, and during the Q2 earnings call, Palantir CEO Alex Karp stressed, “We are going to play a determinant role in making America and its Western allies the dominant force again in this world.”
Palantir’s Business Benefits from Geopolitical Tensions
Let’s think of it this way: While growing geopolitical tensions between the Western world and its adversaries — especially China — are a negative overhang for many tech companies, including the likes of Apple (AAPL) and Nvidia (NVDA), this kind of saber-rattling actually helps to grow Palantir’s government business.
The company has also been ramping up its commercial business, and had 295 commercial customers in the U.S. in Q2. The corresponding number in Q2 2020 was a mere 14, which highlights how quickly the company’s commercial business has grown.
At the same time, Palantir has been able to increase its margins. Its GAAP operating margins have expanded for five consecutive quarters, rising to 37% in Q2.
Palantir’s Valuations Seem High
However, while Palantir has an impressive business model – albeit a controversial one, due to its government contracts – its valuations have been a sore point for many investors. The data analytics company trades at a next 12-month (NTM) price-to-sales multiple of over 31x. For context, the multiple was just around 12x when Palantir went public in 2020 amid the IPO boom. The multiple peaked above 51x in Q1 2021, but has averaged 18x since its listing.
Palantir’s NTM price-to-earnings (PE) multiple is 106x. There are various ways to look at this multiple. Analysts are modeling a 137% YoY increase in the company’s 2024 earnings per share (EPS), so the PE multiple wouldn’t look all that exorbitant on this basis, especially as it's not much different from the stock's historical valuation.
However, analysts expect Palantir's EPS to rise by just about 37% in 2025, while predicting its top line to grow by 20.5%. Therefore, the question that needs to be asked is whether PLTR’s valuations are reasonable, given its growth outlook - or whether they have become too rich for comfort after the stock's stellar rally in 2024.
PLTR Stock 2025 Forecast
Sell-side analysts certainly aren't bullish on Palantir – but then again, they have been bearish on the company for quite some time now, even as it kept climbing to new highs.
Of the 14 analysts covering PLTR stock, only 2 rate it as a “Strong Buy,” and 6 say it's a “Hold.” One analyst rates Palantir as a “Moderate Sell,” while 5 recommend a “Strong Sell.”
Palantir trades significantly higher than its mean target price of $26.71, but its Street-high target price of $50 is 19% higher than Thursday’s closing prices.
In his note yesterday, Mizuho analyst Greg Moskowitz, who is bearish on Palantir, said, “We continue to believe PLTR needs to consistently demonstrate stronger execution and growth in order to justify a notably higher valuation.”
While he raised the stock's target price by $6 to $30 - above the mean price target, making him a little more bullish than the average sell-side analyst - that's still below Palantir's current price.
However, Wedbush analyst Dan Ives, who has an “Outperform” rating and $45 target price on PLTR, believes that “Palantir is in a prime spot to continue expanding its pipeline/deal flow” as AI spending continues to rise.
Is There Steam Left in PLTR’s Rally?
I believe that while Palantir’s business should continue to blossom in the coming years, and the company has a good runway for growth, most of the positives look baked in at these prices. The stock’s risk-return dynamics look unfavorable to me at these levels, and while the upside looks limited, the stock could come under pressure on the slightest sign of a slowdown in its growth momentum.
Overall, I would give PLTR a miss at these levels, as it is difficult to build a bullish case for the company at its almost $100 billion market cap, but would consider adding a position if the stock falls to more reasonable prices.
On the date of publication, Mohit Oberoi had a position in: AAPL , NVDA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
