Many investors today question whether AI darling Palantir Technologies (PLTR) is a case of a stock market bubble. Currently trading at earnings multiples north of 350x, such multiple expansion is reminiscent of the tech frenzy during the dot-com bubble, when some companies traded at valuations in the triple digits of profits.
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However, unlike those internet-era names, Palantir is a company that actually generates real profits and enjoys strong operating margins—something virtually unseen during the dot-com mania. Even so, trading at over 350x earnings suggests that Palantir is priced for a “perfect” AI narrative. The company has reached this point after successive upward revisions from analysts, quarter after quarter, as Palantir itself struggles to fully gauge the scale of demand for its software and how far it can monetize its growing base.
That said, with Palantir set to report Q3 results next week, I expect another broad-based beat, adjusted operating margins above 46%, and an annual guidance raise to keep the momentum going. Otherwise, a sharp correction seems inevitable.
Still, I lean toward the constructive scenario—believing that focusing on valuation right now would be a mistake, just as it was for those who missed the story over the past couple of years. For that reason, I maintain a Buy rating on Palantir.
The Only Way is Up
Palantir has become one of the most emblematic names in the AI space—arguably alongside Nvidia (NVDA)—thanks to its explosive growth over a very short period.
Through its government and commercial software platforms, Gotham and Foundry, Palantir can handle chaotic, heterogeneous, and sensitive data like no other company. What truly sets it apart is that Palantir’s software doesn’t just visualize data—it allows users to operate on it, often through automated decision-making. It may sound broad and technical, but the real leap in Palantir’s fundamentals over the past couple of years has come from its successful transition to the private sector, which has massively expanded its total addressable market (TAM).
The launch of the AIP (Artificial Intelligence Platform) took this even further, applying generative AI models directly to corporate data. Combine that with a “land and expand” model—where Palantir deploys pilots quickly, generates tangible value early on, and then scales internally with each customer—and clients get extremely high switching costs, binding them to Palantir’s software ecosystem. The surge in enterprise AI demand has fueled this dynamic, pushing Palantir’s RPO (Remaining Performance Obligations) to $2.42 billion, up 75% year-over-year from $1.37 billion.
Such impressive progress in signing new contracts—and management’s repeated comments that demand for AI continues to exceed their own expectations each quarter—is precisely what gives investors confidence to dream big, justify Palantir’s premium valuation, and project continued explosive growth ahead.
Palantir’s Growth Explosion Keeps on Going
Over the last nine consecutive quarters, Palantir has delivered a remarkably steady acceleration in revenue growth—from 12.78% YoY in June 2023 to 48% YoY in June 2025—effectively doubling its top line in just two years. Even more impressive, however, is the company’s ability to expand its top line while simultaneously expanding operating margins.
For instance, Palantir’s adjusted operating margin in 2Q25 stands at 46%, up from 37% in the same period last year, marking a consistent quarterly expansion. The combination of 48% annual revenue growth and 46% margins produces a Rule of 40 score of 94%—an extraordinarily high level even among leading software companies. For context, the Rule of 40 suggests that a software company achieves excellent efficiency when the sum of its revenue growth and operating margin exceeds 40%.
In Palantir’s case, this means the company isn’t just growing at an explosive rate—it’s achieving explosive operational efficiency at the same time, something few businesses in the software or AI space can match.
It’s mainly because of this exceptional performance that the market has assigned Palantir equally explosive valuation multiples. The stock currently trades at a forward P/E of around 292x. Even if we take the consensus 2027 EPS estimate of $1.19 (versus $0.33 over the past twelve months), the multiple would still be around 158x—more than 4.5 times Microsoft’s (MSFT), the world’s largest and most profitable software company.
What Palantir Needs to Deliver
Since Palantir’s valuation multiples seem to price in not only perfect execution but also ‘hypergrowth’ over the next few years, the company needs to deliver another explosive quarter—at the very least.
According to its latest guidance, revenues are expected to come in between $1.083 billion and $1.087 billion, roughly in line with analyst consensus. Meanwhile, adjusted income from operations is projected between $493 million and $497 million, which at the midpoint implies an operating margin of about 45.6%—slightly more modest than last quarter’s figures. But I expect Palantir not to match the high end of its guidance—a pattern it has often shown in recent quarters.
Still, momentum around Palantir has been highly bullish for at least the past two years, largely because market estimates have been constantly revised upward. For example, just two quarters ago, both the top and bottom-line projections for Palantir’s Q3 were 16% and 21% lower than they are today.
This aligns perfectly with the idea that AI demand remains in its early innings and that Palantir still has ample room to expand margins. Because of that, I expect the company to raise its annual guidance once again—for both revenues and operating income. If that doesn’t happen, it could trigger heavy pressure on the stock and potentially lead to a sharp sell-off.
In any case, Palantir’s management has been smart in maintaining a conservative guidance strategy, which helps sustain credibility and manage expectations. I expect the same approach in Q3, especially since AI demand shows no signs of slowing down—in fact, quite the opposite.
Is PLTR a Buy, Hold, or Sell?
The current consensus on the Street leans toward skepticism. Of the 19 analysts who have covered the stock over the past three months, 13 rate it a Hold, while only four recommend a Buy and two a Sell. Valuation appears to be the biggest concern, as the average price target of $158.41 implies a potential downside of about 19% over the next twelve months.
Overvalued, but Still Worth Owning
Palantir appears to be overvalued by almost every traditional valuation metric. However, that doesn’t mean the stock can’t become even more overvalued as time goes on—especially when there’s no apparent downside anywhere in sight.
The ultra-bullish estimate revisions that have followed nearly every quarter should continue, as AI demand shows no signs of cooling and operational efficiency remains strong. For that reason, I still see Palantir as a Buy ahead of earnings, even if the valuation metrics may argue otherwise.