Palantir Technologies (NASDAQ:PLTR) is one of the belles of the AI ball, and the company has been on a blistering run over the past few years. Palantir’s most recent quarter only added more fuel to the fire.
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The company generated $1.2 billion in revenue, which represented both a new record-high and an “otherworldly” growth rate, in the words of CEO Alex Karp.
The CEO’s exuberance is well-founded, and he seems to delight in poking those critics who might dare to question Palantir’s continuing success.
“This ascent has confounded most financial analysts and the chattering class,” declared Karp in his Q3 letter to shareholders.
Of course, the problem most investors have with Palantir isn’t the company’s performance, but rather the valuations of PLTR’s share price. Indeed, PLTR has gained over 2,000% in value during the past three years, and currently trades at a price-to-earnings ratio nearing 380x.
Count investor Justin Pope among those who just can’t get beyond PLTR’s high-flying share price.
“Make no mistake about it, Palantir’s stock has reached valuations that could have very profound consequences if all that market euphoria and enthusiasm fades even a little,” explains the 5-star investor.
Pope readily acknowledges that Palantir is clicking on all cylinders, and the “genuine game-changer” has plenty of runway to continue growing. He notes that the company currently has fewer than 1,000 customers, meaning that there is a world of potential clients still available.
The investor is also willing to assume Palantir outpaces Wall Street’s 41% growth projections for the coming year, anticipating that the company will deliver a 50% increase in revenues to reach $6.6 billion in 2026.
And yet, even were this growth to occur, the multiple would still remain much too high for Pope’s liking. The investor points out that companies rarely sustain price-to-sales ratios of 40x or 50x, whereas PLTR’s is currently north of 100x. As such, the investor believes it is only a matter of time before PLTR’s multiple comes down.
This could have a painful impact. For instance, were the price-to-sales ratio to reach 60x, even the 50% growth in revenues that Pope is expecting for the coming year would only yield minimal upside for the share price.
“Palantir has been an anomaly to this point, but it’s still far more likely that this is the exception and not the rule,” Pope adds. “It shouldn’t be a shock if Palantir’s share price is lower in early 2027 than it is today.” (To watch Justin Pope’s track record, click here)
Wall Street is treading cautiously as well. With 3 Buys, 11 Holds, and 2 Sells, PLTR carries a consensus Hold (i.e., Neutral) rating. Its 12-month average price target of $187.87 implies gains of ~15%. (See PLTR stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.