When a stock reaches new highs and demonstrates strong historical performance, it’s easy to get caught up in the excitement and consider increasing your position. However, this approach may not always align with a sound investment strategy. As Warren Buffett wisely advises, it’s prudent to be cautious when market sentiment turns overly optimistic. Recent price action indicates that PLTR stock has set an all-time record high of nearly $150 and is now consolidating within a $125-$150 range.
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I continue to hold my position in Palantir Technologies (PLTR), which has appreciated over 60% since my initial investment a few months ago. That said, this may be an appropriate moment to reassess while maintaining a long-term bullish outlook. With the stock now paused and building up steam for the next leg higher, PLTR stock bulls are in high spirits.
Palantir Soars to New Highs Amid AI Momentum
Palantir has always traded above its 50-week moving average since its bull charge began in early 2023. Therefore, it’s unreasonable to use the 50-week as a gauge for fair value here. The market loves Palantir stock, and just because it’s trading above specific indicators does not mean the price is coming down. However, this unusual sentiment does introduce significant risk, which is why I own Palantir stock at less than 2% of my total portfolio.
The 14-week Relative Strength Index (RSI) is currently below 70, indicating that the stock is not technically overbought; however, at 63, it remains relatively expensive. Typically, I look for a high-growth name with an RSI score of under 60; otherwise, I may be sacrificing returns for the company’s internal growth that’s priced excessively by the market.
However, I’m still holding my Palantir stock because I think the long-term growth horizon is exceptional. With a balanced approach to commercial and Government revenues, the business is agile enough to sustain growth throughout macroeconomic cycles, including periods of geopolitical stress. According to TipRanks data, PLTR’s revenue growth has been indomitable, rising consistently since 2019.
From a valuation standpoint, Palantir’s forward price-to-sales ratio is nearly 80, which is enormous compared to the sector median of 3. While this is supported by forward revenue growth of 31%, that’s only marginally higher than the company’s five-year average of 27.4%. The company’s five-year average trailing 12-month (TTM) price-to-sales ratio is 27.4, so the company is definitely “overvalued” from a fundamental basis.
You could call Palantir a speculative investment at this point, or a “sentiment trade,” but that doesn’t make it any less likely to deliver strong returns. The company’s year-over-year earnings per share growth is 111%, compared to just 7.5% for the sector, making it an undeniably winning company, despite its very high price.
Stable Earnings and Revenues with Exceptional Management
Palantir offers shareholders one element in particular that I believe is particularly compelling: stability in expanding revenues and earnings. Palantir benefits from a highly recurring-revenue business model, which enables it to grow its existing subscription base through word-of-mouth network effects, allowing it to consistently dominate its market niche over time.
Management has also engineered the financials with elite precision. The balance sheet boasts $5.4 billion in cash, accompanied by zero debt—a rare and powerful advantage in terms of financing power and operational agility.
Many Palantir investors are indeed buying the stock based on speculative upside, including the prospect of expanding financial growth rates from the company’s more aggressive proliferation into international defense markets in the long term. However, I also believe Palantir stock has become sustainably priced at such a high valuation due to its brand strength.
Similar to Tesla (TSLA), although the pure financials may suggest that the stock is overvalued, the high price can be sustained based on brand strength, exceptional leadership, and long-term upside optionality in the burgeoning AI market.
However, the most apparent difference is PLTR’s market performance compared to TSLA. As PLTR has marched to fresh record highs, TSLA has struggled to convert strong sentiment into share price gains.
However, if Palantir starts underperforming financially in the long term, including due to increased competition and shifts in U.S. defense budgets, the valuation could certainly take a significant and permanent hit. Palantir’s valuation upside hinges on the company sustaining its current growth trajectory and potentially increasing it over time. If it fails in this endeavor, investors could be in for a rude awakening. This is why I view Palantir as a high-risk, high-reward investment that should be held in a diversified portfolio.
That being said, I reiterate that I consider management to be elite operators, and they have established a software and customer-network moat that is irreplaceable in the market in the near term. It would take serious and sustained errors for the company to lose its significant market lead. That’s why, despite the risks, I’m remaining long-term bullish.
Is PLTR a Strong Buy?
On Wall Street, Palantir has a consensus Hold rating based on three Buys, nine Holds, and four Sells. PLTR’s average stock price target is $105.29, indicating a 20% downside over the next 12 months.
That said, Wall Street’s ratings on Palantir have historically missed the mark. For the past three years, the consensus rating has remained at “Hold,” despite the company’s consistent outperformance. The takeaway here is that market consensus isn’t always a reliable indicator. Palantir has exceeded expectations and continues to demonstrate strong potential for future growth.
Maintaining Faith in Palantir’s Value Proposition
While it may be tempting to sell Palantir stock amid widespread analyst concerns about overvaluation, it’s essential to recognize that this is far from the end of the company’s journey, nor the broader secular growth trend in artificial intelligence. In many ways, the story is just beginning. Selling now could mean parting with an asset whose most significant growth may still lie ahead. I believe a price target of $150 by 2026 is realistic, aligning closely with the upper range of Wall Street estimates, which currently peak at $155.