Despite delivering one of its strongest quarterly performances ever, Palantir Technologies found itself under pressure in the stock market, highlighting the growing disconnect between the company’s fundamentals and its valuation. Shares declined even after the data analytics and AI software firm topped third-quarter estimates and raised full-year guidance, leaving investors debating whether growth alone can justify its sky-high multiple.
According to Gil Luria, Head of Technology Research at D.A. Davidson, the selloff had little to do with Palantir’s operational performance. “The results were spectacular,” Luria said. “They exceeded any expectations anybody could have.”
Palantir has now surpassed a $4 billion annual revenue run rate, growing at an impressive 63%. Its commercial business more than doubled, driven by large enterprise deals, some reaching nine-figure spending commitments. Meanwhile, the government segment — long considered Palantir’s backbone — expanded by 50%, reflecting increased reliance by public agencies on its software for mission-critical operations.
“These aren’t small contracts,” Luria emphasized. “Companies are lining up to use Palantir to achieve their AI goals, and governments are leaning more heavily on the company to execute theirs.”
Why the Stock Fell Despite Stellar Results
If the fundamentals are so strong, why did the stock drop? The answer appears to lie more in market sentiment than company performance. According to Luria, the decline was driven by a broader “risk-off” environment that weighed on high-multiple, AI-exposed stocks across the board.
“This had nothing to do with Palantir specifically,” he explained. “It was a general pullback in higher-multiple names.”
Palantir’s valuation remains one of the most controversial in the market. The company currently trades at a price-to-sales ratio near 85 — among the highest in the entire S&P 500. On other metrics such as EV-to-cash flow and price-to-earnings, the numbers are equally extreme.
“There’s really no traditional way to justify Palantir’s valuation,” Luria admitted. “It’s completely divorced from fundamentals and from any historical comparisons.”
Even so, investors continue to buy the stock because they believe Palantir’s growth trajectory can persist for many years. That belief, rather than discounted cash flow models, is what currently supports the stock.
A Market With No Clear Ceiling
One of the most compelling arguments in Palantir’s favor is the sheer size of its opportunity. Despite its rapid growth, Palantir remains relatively small compared to established software giants. Adobe generates roughly $20 billion annually, Salesforce about $40 billion, and Oracle nearly $50 billion.
“Palantir is just getting started,” said Luria. “At its current size, there is no ceiling on its growth anytime soon.”
The company operates at the intersection of artificial intelligence, data integration, and decision intelligence — a space that is expanding rapidly as enterprises and governments race to adopt AI. Unlike competitors, Palantir offers an end-to-end platform that integrates disparate data sources while maintaining strict privacy and security controls.
“They allow organizations to use AI without compromising data confidentiality,” Luria explained. “And they do it with a soup-to-nuts approach that eliminates the need for multiple vendors and consultants.”
These capabilities, built over two decades, are difficult to replicate and explain why Palantir has pulled ahead of rivals attempting similar solutions.
Neutral Rating, Not a Negative View
Despite praising the company’s execution and long-term potential, Luria maintains a neutral rating on the stock. The reason is simple: valuation discipline.
“I’m old-school,” he said. “Multiples matter. They have to be anchored to something — history, peers, cash flows. And Palantir’s simply aren’t.”
That doesn’t diminish the company’s achievements or future promise, but it does make the stock difficult to model using traditional frameworks. As a result, Palantir has become a stock driven more by investor conviction than analytical consensus — a setup that can lead to sharp volatility on days when sentiment shifts.
The Bigger Picture: AI Winners and Losers
Palantir’s debate fits into a broader discussion about AI valuations across the technology sector. According to Luria, today’s market can be divided into two distinct camps.
The first includes established leaders such as Microsoft, Nvidia, Google, Amazon, and Meta. These companies are building real AI infrastructure based on tangible demand and are trading at relatively reasonable valuations — often below 30 times earnings.
“They’ve all reported a positive inflection in AI demand,” Luria noted. “And they’re building responsibly.”
The second group consists of more speculative players relying heavily on debt-financed data center expansion and complex related-party arrangements. These models depend on continued access to cheap capital — something that may not persist in a higher-rate environment.
“That’s where the risk is,” Luria warned. “Some of these companies are extraordinarily expensive and highly dependent on the ability to raise debt.”
Final Takeaway
Palantir stands out as one of the most compelling AI software stories in the market, combining rapid growth, unique technology, and expanding demand across both commercial and government sectors. However, its valuation places it in a category of its own — admired for execution, debated for price.
For investors, the message is clear: Palantir may continue to grow at exceptional rates, but its stock will remain sensitive to shifts in risk appetite and valuation discipline. In a market increasingly focused on separating real AI adoption from speculation, Palantir sits firmly in the spotlight.