Palantir (PLTR) has been one of the most talked-about AI and data analytics stocks in recent years, fueled by strong government contracts and growing interest in its AI platform. However, as the stock heads toward 2026, high expectations and a premium valuation leave little room for missteps. In this article, we highlight three key red flags investors can’t afford to ignore when evaluating Palantir’s outlook.
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Let’s dig deeper.
1. Reliance on Government Deals
More than half of Palantir’s revenue comes from U.S. government contracts. In its most recent quarter, the company posted 63% overall revenue growth, with revenue from U.S. government customers increasing by 52% year over year.
Because Palantir relies heavily on government work—often tied to defense and intelligence agencies—the company faces risks if government priorities change. As a result, it is more vulnerable to political changes, tighter regulations, and public scrutiny. Any controversy involving data privacy, surveillance, or security issues could further damage its reputation. Together, budget cuts, lost contracts, and increased political or public pressure could weigh on Palantir’s future growth.
2. Valuation Concerns
Palantir’s strong performance has driven investor expectations to very high levels, leaving little room for the company to miss targets. While its rapid growth highlights a large market opportunity, valuation remains a key concern for investors. At current levels, the stock appears expensive, with a forward (non-GAAP) price-to-earnings ratio of 260.61, compared to the sector average of 24.55.
The key takeaway is that at current prices, investors are betting on a long period of very strong growth and stable margins, leaving little margin of safety. As a result, the stock is likely to remain volatile, and even a cooling of AI enthusiasm could lead to sharp valuation declines, even if the company’s fundamentals stay strong.
3. Heavy U.S. Contract Dependence
In Q3 2025, Palantir signed a record $2.76 billion in total contract value, representing a 151% increase year over year. Meanwhile, U.S. commercial contract value also reached a record $1.31 billion, surging 342% from the prior year.
However, RBC Capital’s analyst Rishi Jaluria pointed out that Palantir’s performance remains heavily focused on the U.S. The firm also noted that bookings are largely concentrated in multi-year U.S. commercial AI contracts. He warned that long-term U.S. commercial contracts may be pulling demand forward, which could result in slower revenue growth in the near term. He added that despite strong profitability, there is limited visibility into what normalized growth will look like once early AI Platform (AIP) deployments mature.
Jaluria has a Sell rating on PLTR stock, predicting a downside of over 70% from current levels.
Is Palantir Stock a Buy?
Turning to Wall Street, PLTR stock has a Hold consensus rating based on three Buys, 11 Holds, and two Sells assigned in the last three months. At $187.87, the average Palantir stock price target implies a 0.45% downside risk.
Year-to-date, PLTR stock has gained almost 150%.
