Palantir Surges on Strong Growth. Is It Too Late to Buy the Stock?

Palantir Technologies (PLTR -0.39%) stock continued its rapid ascent after the data analytics and artificial intelligence (AI) software company reported strong fourth-quarter results that once again showed accelerating revenue growth. The stock is up a whopping 510% over the past year, as of this writing.

Palantir has become one of the biggest AI winners on the software side, but with that has also come a frothy valuation. Let’s dive into the company’s latest results to determine whether it’s too late to buy the stock.

Crushing expectations

For the sixth consecutive quarter, Palantir’s revenue growth accelerated, rising from 13% to 36% in that period. Fourth-quarter revenue reached $828 million, and adjusted earnings per share (EPS) rose from $0.08 to $0.14 year over year. That was well ahead of the $0.11 in EPS on $776 million in revenue that analysts were expecting, as compiled by LSEG.

Palantir’s land-and-expand strategy is working as spending among existing customers continues to rise with trailing-12-month net dollar retention of 120%, a 200-basis-point improvement compared to last quarter. This metric measures revenue growth from customers that have been with the company for more than a year, and management noted the number doesn’t reflect the strong growth it has been seeing from customers added within the past year.

By segment, commercial revenue climbed 31% year over year to $372 million, with U.S. commercial revenue soaring 64% to $214 million as its customer count reached 383. International commercial revenue was a laggard, rising 3% to $158 million.

On the government side of the business, revenue jumped 40% year over year to $455 million. U.S. and international government revenue climbed 45% and 26%, respectively. Palantir credited its strong U.S. government growth to good execution within existing programs and new awards as the government embraces its AI software.

Management is guiding for full-year 2025 revenue of $3.741 billion to $3.757 billion, representing growth of about 31% from 2024. The U.S. commercial business will fuel that outlook with at least 54% growth. Adjusted operating income is expected to land between $1.551 billion and $1.567 billion.

Image source: Getty Images.

Should investors still buy the stock?

Palantir is undoubtedly a leader in AI software, and it still faces a huge opportunity as it continues to both add new customers across industries while growing its relationships with existing ones. The company wants to become the go-to AI operating system for companies, and it’s making progress toward that goal. Rising profitability also means Palantir is generating its growth in a disciplined manner.

However, valuation remains Palantir’s biggest issue, and it trades at a forward price-to-sales (P/S) ratio of 63 as of this writing. I wouldn’t be surprised if the company beats its outlook to grow revenue 40% in 2025. But can it repeat that performance over the next five years? It needs to in order to justify its valuation, and based on a theoretical $15.4 billion of revenue in 2029 and zero change to its market capitalization, the stock would still trade at a pricey 15 times revenue.

Sustaining that type of growth in a industry as competitive as AI will be no easy task. Investors must manage their risk if they’re going to chase this stock, and I suggest keeping any position in Palantir small.