Palantir Trading at 65x Sales is Reminiscent of the Dot-Com Bubble

Keon Etminan
Jan 4
3 min read

Updated: Jan 6

Key Takeaways:

Palantir Technologies Inc. (PLTR) trades at a staggering 65x sales, making it one of the most overvalued stocks among growth companies.
While the company demonstrates robust revenue growth and GAAP profitability, its current valuation is unsustainable.
Even under the most optimistic growth scenarios, PLTR’s valuation implies significant downside risk, warranting a “strong sell” rating.
Rich valuations hinder stock attractiveness, and PLTR’s price looks excessive even based on long-term projections.

Introduction

Palantir Technologies Inc. (NASDAQ:PLTR) has become the face of the latest tech bubble. Despite being GAAP profitable and showcasing strong revenue growth, its valuation dwarfs even the most richly valued peers. At its current price, PLTR offers a nearly asymmetric return profile to the downside, leading us to issue a “strong sell” recommendation.

PLTR Stock Price

Previously, we rated PLTR a “sell” due to its inflated valuation. Since then, the stock has surged, delivering triple-digit returns. However, the fundamentals remain unchanged, and the valuation has only become more untenable.

Valuation Analysis:

PLTR trades at its highest valuation ever.
Revenue growth today is significantly lower than during the 2021 tech bubble.
The stock’s valuation has jumped from 25x sales to nearly 65x sales in just a few months.

PLTR Stock Key Metrics

PLTR has emerged as a leading AI software play, leveraging its data analytics products to boost productivity for its customers. The rise of generative AI has acted as a catalyst for the company’s growth.

Highlights:

U.S. commercial revenue grew 54% year-over-year (YoY) in Q3 2024.
Commercial customer count increased 51% YoY.
Billings surged 50% YoY, while short-term remaining performance obligations (RPO) grew 30% YoY.
Q3 2024 revenue reached $726 million, representing 30% YoY growth.
GAAP operating margins improved by 900 basis points YoY.
Balance sheet remains robust with $4.6 billion in net cash and no debt.

Future Guidance:

Management projects Q4 2024 revenue of up to $771 million, implying sequential growth.
The company sees itself as a leader in the AI space, with a “winner-takes-all” narrative.

Is PLTR Stock A Buy, Sell, or Hold?

While PLTR’s business fundamentals appear strong, its valuation significantly hampers its attractiveness as an investment. The stock’s inclusion in the Nasdaq 100 Index has fueled recent gains, but this momentum is unlikely to be sustainable.

Comparative Analysis:

At 65x sales, PLTR trades at a triple-digit premium to richly valued peers like CrowdStrike (CRWD), Cloudflare (NET), and ServiceNow (NOW).
Unlike its peers, PLTR’s product reviews among data engineers remain mixed, further questioning its valuation premium.

Scenario Projections:

Even under an unrealistic scenario where PLTR achieves 100% revenue growth in both 2025 and 2026, the stock would still trade at 16x sales.
Such a valuation implies a 40x earnings multiple, which remains rich even for a high-growth company.
Revenue growth is likely to decelerate as the company scales, akin to Zoom Communications (ZM) post-pandemic.

Conclusion

PLTR’s valuation is detached from reality, even when considering optimistic growth projections. The company trades at approximately 15x 2033 consensus revenue estimates, suggesting no room for positive returns over the next decade. While the business fundamentals are strong, the stock’s rich valuation significantly impairs its attractiveness.

Final Recommendation:

We downgrade PLTR to a “strong sell.” The risk-reward profile is heavily skewed to the downside, and investors should steer clear of this overhyped stock.

TL;DR:

Palantir Technologies (PLTR) trades at an unsustainable 65x sales, making it the most overvalued growth stock. Despite strong fundamentals, the valuation leaves no room for upside and significant downside risk. We issue a “strong sell” recommendation, as even the most optimistic growth scenarios fail to justify the current stock price.