Palantir’s Soaring Stock: A Tale of Speculation and Reality
This year, few assets have garnered as much attention — and as little introspection — as Palantir. The company, whose name evokes Tolkien’s magic stone that allowed one to see any corner of the world, has had a stellar year; its stock has surged by 107% so far this year, even after a recent 17% drop over seven trading sessions.
A Year of Extraordinary Growth
In 2023, Palantir saw a gain of 167%; in 2024, an astounding 340%. Today, its ascent resembles more of a parabola. Among market veterans in the trading halls, there’s growing unease: what are investors seeing… and what are they overlooking?
Beyond the Surface: Palantir’s Business and Valuation
Palantir is not an improvised startup. It has government contracts, a presence in defense and intelligence, and ambitions to expand into the private sector. Its corporate narrative blends algorithmic patriotism, dystopian vision, and technological mystique.
However, upon examining its financial statements, the reality is less magical: in the last 12 months, it has generated only $3.44 billion in revenue, with a 17% operating margin and a 39% revenue growth rate. There are no losses, but also no cash flow machine.
What confuses observers isn’t so much Palantir’s business but its valuation. With a market cap of $371 billion, Palantir is worth more than Adobe ($150 billion), Unilever ($155 billion), Xiaomi ($175 billion), Nike ($113 billion), and BlackRock ($184 billion).
All these companies have decades of operations, global presence, solid margins, and recurring cash flows. Palantir, on the other hand, has modest revenues — less than 1% of Amazon’s — yet enjoys overflowing faith. A self-fulfilling valuation metaverse.
Valuation Multiples: A Cause for Concern
From a multiples perspective, the picture doesn’t look reassuring. Palantir currently trades at nearly 521 times earnings (P/E) and around 105 times sales (P/S). This level is rarely sustained, even for highly scalable companies.
For instance, Amazon has a sales multiple of just 3.5x, with over $167 billion in revenue in Q2 alone. Microsoft — representing tech euphoria’s peak in the year 2000 — now trades at 13.4x sales but with $282 billion in revenue over the past 12 months and structural profitability justifying its price.
Cisco never recovered its stock price after the dot-com bubble burst. Today, it’s just 22% away from its January 2000 high and trades at 4.7x sales.
Palantir isn’t alone in this phenomenon. The tech sector is experiencing growth: the sector index trades at 9.8x P/S, and the S&P 500 is near its historical high of 3.2x.
The Narrative vs. Fundamentals: Palantir’s Unique Case
Palantir’s case, however, goes beyond general euphoria. Here, the narrative supports the thesis more than the fundamentals.
Faith in artificial intelligence, proximity to the Pentagon, the esoteric aesthetics of its presentations, and its air of inevitability seem to have convinced the market that the future has arrived, and Palantir is its official interpreter.
However, history suggests caution. At the turn of the millennium, companies like Pets.com, Webvan, or theGlobe.com reached astronomical valuations before vanishing.
Today, survivors from that era trade disciplinedly: Oracle at 11.3x sales, Intel at 1.9x, Qualcomm at 3.9x. What sets them apart is not just their existence but also their real revenue, sustainable margins, and proven models.
In this context, Palantir appears valued as if it had already reached that level of maturity. But it hasn’t.
It lacks the revenues, margins, and cash flow of its pricier peers. It doesn’t even compete in the same operational leagues. Yet, the market treats it as if its success were inevitable.
The Risk of Overconfidence: Lessons from the Past
The most concerning aspect of Palantir isn’t its price but the conviction with which it’s justified. As if its mere association with artificial intelligence guarantees success. As if government contracts are eternal. As if the market has already decided that disruption will not fail this time.
But history is clear: when analysis stops and belief begins, multiples inflate… only to deflate later.
In an era where everything can be measured and predicted, it’s ironic that the most apparent risk is right in front of us. Palantir’s name suggests it promises to see the future. But, as Tolkien’s kings learned, even the most powerful visions can deceive those who refuse to see.
- Key Question 1: What makes Palantir’s valuation so high?
- Key Question 2: How do Palantir’s multiples compare to other tech giants?
- Key Question 3: What lessons can be learned from past tech booms and busts?
Answer: Palantir’s valuation is high due to investor faith in its association with artificial intelligence, proximity to the Pentagon, and a compelling narrative, despite its modest revenues and lack of cash flow compared to other high-valued companies.
Answer: Palantir trades at nearly 521 times earnings (P/E) and around 105 times sales (P/S), which is significantly higher than tech giants like Amazon and Microsoft, indicating a level of valuation rarely sustained.
Answer: Past tech booms and busts, like the dot-com era, teach us that overconfidence and disregard for fundamentals can lead to inflated valuations, which eventually correct. Companies like Oracle, Intel, and Qualcomm, which survived, demonstrate the importance of real revenue, sustainable margins, and proven business models.
