Palantir Technologies Inc. (PLTR): A Bear Case Theory
A software engineer manipulating a vast network of code on virtual monitors.
Palantir Technologies has emerged as one of the most talked‑about names in the AI boom, with its data analytics platforms Gotham and Foundry, initially designed for intelligence agencies, now widely used by enterprises and governments. The company's newly launched AI platform enables natural‑language querying, further fueling investor excitement about its potential to dominate the AI‑driven data analytics space. Financial performance has been robust, with Q1 2025 revenue rising 39% year‑over‑year to $884 million, U.S. sales up 55%, and commercial revenue surging 71%.
Palantir remains profitable, earning $462 million in 2024 and $214 million in the latest quarter, supported by $5.4 billion in cash reserves and no long‑term debt. Its customer base remains heavily skewed toward government contracts, contributing roughly 55% of revenue, and the top 20 clients account for a substantial share, creating concentration risk. Shares have soared more than 400% over the past year, closing around $159 on July 25, propelled by AI optimism.
However, the valuation—trading at over 120× trailing sales and 200× next year's earnings—is historically extreme, implying that even modest growth disappointments could lead to steep declines. A discounted cash‑flow analysis, even with bullish assumptions, suggests fair value closer to $20–30 per share, in line with other fast‑growing software peers trading at 8–20× sales.
Risks include intensifying competition from tech giants, reliance on large customers, potential government budget tightening, and shareholder dilution from heavy stock‑based compensation. While Palantir's fundamentals remain strong, analysts caution that exuberant pricing leaves little margin for error, making the stock a speculative bet despite its operational momentum.
Previously we covered a bullish thesis on Palantir Technologies Inc. (PLTR) by Deep Value Returns in May 2025, which highlighted its strong growth, AI leadership, and profitable scaling despite a premium valuation. The company's stock has appreciated about 46% since, driven by AI optimism. smltc shares a contrarian view and emphasizes extreme valuation risks and downside potential.
Palantir Technologies Inc. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 77 hedge fund portfolios held PLTR at the end of the first quarter which was 64 in the previous quarter. While we acknowledge the potential of PLTR as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None.
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