Palantir Technologies (PLTR) is one of the most talked-about stocks in America right now—and it’s no surprise, given it’s the top performer in the S&P 500 (SPX) this year, up more than 140% so far and ~522% over the past twelve months. That kind of run reflects a business that’s establishing a pseudo-monopoly in AI software before our very eyes — something competitors have found incredibly hard to replicate. According to price action data, PLTR diverged from the S&P in April this year, and the stock has not looked back since.
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Being at the center of powerful, long-term AI tailwinds has led to a streak of quarterly results that consistently beat expectations, along with steady upward revisions in guidance. It’s become a rare example of a company growing at breakneck speed while also expanding margins to impressive levels.
Yes, all of this comes with a price tag that would make any value investor balk—and insider selling, along with reduced institutional exposure, shows that not everyone is comfortable buying in at these highs. But I don’t see any current weakness that suggests the bullish momentum is fading. The market clearly sees Palantir as a transformational opportunity.
With that in mind, a Buy rating for PLTR still seems reasonable—despite valuation risks—since market skeptics are too focused on price and have overlooked the broader opportunity.
How Palantir Earned Its Spot Among the Elite
There’s no other company in the software or AI space currently matching Palantir’s rare combination of 48% revenue growth and 46% operating margins. Unsurprisingly, that kind of performance commands a steep premium: 326x earnings and 116x sales—roughly ten times above sector averages.
Naturally, many investors are left scratching their heads, questioning how the company delivers such numbers and whether the sky-high multiples are even remotely justified. However, combining Palantir’s most recent revenue growth and operating margin results in a Rule of 40 score of 94%—well above the 40% benchmark typically seen as healthy for high-growth software companies.
That kind of metric isn’t easy to find. In fact, among software names, only Fair Isaac (FICO) and Intuit (INTU) come close, with Rule of 40 scores of 69% and 77%, respectively. And when you broaden the lens to include the 25 largest companies globally by market cap, only Nvidia (NVDA) comes out ahead at 122%, followed by Eli Lilly (LLY) at 89% and TSMC (TSM) at 88%.
So when Palantir posts the highest Rule of 40 in its peer group, it’s not just an arbitrary stat—it highlights a company that’s scaling incredibly fast while being highly profitable, which helps explain why the market is assigning it such a premium valuation. In other words, the firm sets highly ambitious targets that beguile belief, only to deliver above and beyond their initial expectations, which simply leads to incredulity.
The Moat Investors Don’t See
Although Palantir’s bullish thesis often highlights its unmatched AI software, I believe there’s still a lot of misunderstanding around how the company actually maintains its moat.
For example, CEO Alex Karp frequently uses highly technical rhetoric, emphasizing the concept of “ontology.” In Palantir’s context, ontology refers to the data model layer that organizes and maps all of an organization’s data, processes, and relationships into a single, unified, operationally meaningful structure.
For instance, for clients like Citigroup (C), the onboarding process was cut from nine days to seconds. For Fannie Mae (FNMA), fraud detection went from two months to seconds. These improvements translate into millions in cost savings, and it’s no surprise that total RPOs have grown 76.6% year-over-year, now totaling $2.42 billion.
Palantir’s revenue comes from a mix of development, which is a one-time fee, and software usage through licenses and subscriptions, which generate recurring revenue. While the company doesn’t publicly break down exact dollar amounts per contract for development versus recurring fees, a reasonable estimate is that in, say, a $10 million enterprise contract, roughly a quarter is charged as an integration fee (paid upfront or in milestones), with the remainder billed as recurring software fees over a more extended period, such as five years.
This model allows Palantir to achieve extremely high margins thanks to recurring, high-value software revenue and a scalable delivery setup—a key reason why the company performs so well under the Rule of 40.
Institutional Skepticism and the Price of Hype
There are two caveats in my bullish thesis. First, for whatever reason, institutional investors don’t seem nearly as excited about the stock as retail investors. Not only have insiders refrained from buying—selling $97.3 million worth of shares over the past three months—but hedge funds have also been cutting their exposure, signaling hesitation to back a company trading at eyebrow-raising valuations.
To me, Palantir stock feels like a game of musical chairs. The momentum might keep things going for a while, but when the music stops, investors could be stuck holding shares bought at sky-high multiples—just like what happened between early 2021 and late 2022, when the stock dropped as much as 80%. Of course, this is speculative—after all, trying to justify a P/E that dwarfs the sector average is like guessing when the music will stop.
Is PLTR a Strong Buy?
Even after multiple price target hikes following the Q2 results, Wall Street still seems pretty skeptical on PLTR. Of the 16 analysts covering the stock over the past three months, only four are bullish, while 13 are neutral, and two are bearish. PLTR’s average stock price target is $152.12, implying ~16.5% downside from the current share price.
Palantir’s Bullish Case Holds Firm
Palantir might be the clearest recent case of the market front-running fundamentals and counting its chickens early, with valuation multiples that would make most value investors flinch.
For now, though, the stock seems to be holding strong—backed by impressive metrics like a Rule of 40 score of 94%, consistent earnings beats, and steady upward revisions to guidance. At this pace, all signs point to Palantir eventually making a run at the trillion-dollar market cap club.
While an eventual correction may be inevitable, I don’t see any cracks yet that suggest it’s coming soon. I still view Palantir as a transformational opportunity—and I think the bears who stayed bearish all the way from $6 in late 2022 to now missed the bigger picture, and probably will keep missing out. Even with the valuation risk, I believe Palantir deserves a Buy rating—at least as a small chunk of a balanced portfolio.