Is Palantir a Top AI Stock to Buy in June?
Palantir's U.S. growth rate is impressive.
Its international sales haven't been gaining quite as rapidly.
The stock trades at a premium valuation.
10 stocks we like better than Palantir Technologies ›
Palantir (NASDAQ: PLTR) has rapidly become one of the most popular artificial intelligence (AI) stocks in the market. It's up by more than 600% since the start of 2024 and has gained more than 60% so far in 2025 alone. Few stocks will ever match that sort of jaw-dropping performance, but now, many investors are wondering if it's too late to buy Palantir.
I think there's one guiding metric that will inform investors whether it is or not, and the answer may surprise you.
Palantir provides its clients with an AI-powered data analytics software suite. While the ins and outs of what Palantir does are quite complicated, its platform can simply be described as data in, insights out.
This basic concept isn't easy in practice, but it has earned Palantir a broad and growing customer base. Palantir's got its start assisting various governments around the world -- and such clients are still its most important customers. It has since then expanded into commercial markets and has seen success in that arena, particularly in the U.S.
In Q1, Palantir's fastest growing segment was U.S. commercial, which saw revenue rise by 71% to $255 million. Its U.S. government accounts also saw significant growth, with revenue increasing by 45% to $373 million.
One area where Palantir is lagging is global sales. This may not necessarily be Palantir's fault, as AI hasn't been as widely adopted as quickly by businesses worldwide (if you exclude China). Its total commercial sales were up 33% to $397 million in Q1, while total government sales increased by 45% to $487 million.
Overall, it's still a rapidly growing business, and if its domestic revenues continue growing at the same pace they have been, Palantir will be just fine.
Palantir's profitability has also improved recently, with its profit margin reaching a record high of 24% in Q1.
To top it off, in conjunction with its Q1 report, Palantir's management team gave guidance for a strong Q2 -- it expects revenue to rise by 38% year over year. However, Palantir's management has a history of guiding low and then overdelivering, so investors shouldn't be too concerned that Q2's forecast growth rate is slower than Q1's 39%.
All of these metrics point to Palantir as still being a successful investment, but there's one problem: the price tag.
As mentioned above, Palantir's stock is up by more than 600% since 2024 began, yet its revenue has only risen by 40% and net income is up 172%. In short, the market is willing to pay more for Palantir's stock than it did in 2024. This occurred by a mechanism known as multiple expansion.
Palantir's stock now trades at jaw-dropping valuations.
Few stocks reach and sustain levels of 212 times forward earnings and nearly 100 times sales. Palantir's execution from here will have to be flawless and outperform expectations, or else the stock will get whacked.
To illustrate how expensive Palantir's stock is, let's take a five-year outlook and assume that Palantir's profit margin improves to 30%, its growth rate stays at 40%, and its share count stays flat. Those are incredibly bullish projections, but we're giving Palantir the benefit of the doubt.
Should those three things occur, in five years, Palantir will produce $16.8 billion in revenue and $5 billion in profits. That would be incredible growth, but if the stock simply stayed flat from now until then, it would be trading for 58 times earnings at that point, which is still quite expensive.
There are so many better options out there for investors than Palantir. The company is growing like few others, but the price you'd have to pay for the stock today already has at least five years of incredible growth baked in. As a result, I think many other stocks will outperform Palantir over the next five years.
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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
Is Palantir a Top AI Stock to Buy in June? was originally published by The Motley Fool
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