Palantir Stock Down 20%. May Fall 74% More As AI's Payoff Stays Low

Forbes

6 hours ago

Palantir stock has recently shed 20% since peaking at $190 a share earlier this month, according to Google Finance.
Does this make Palantir a bargain? Despite a strong second quarter financial report featuring expectations-beating growth and a bullish outlook, there are many reasons to expect the stock to decline further:
To overcome these challenges, Palantir must grow faster by persuading more companies to adopt its platform. That could be difficult because the company's culture is rooted in the defense and intelligence sectors, noted Erika Barker. Enterprises may prefer to buy from more culturally-aligned rivals such as Microsoft and Databricks which offer simpler, more accessible platforms, Medium reported.
Palantir is bullish about the future. 'We're planning to grow our revenue … while decreasing our number of people,' Palantir CEO Alex Karp told CNBC. 'This is a crazy, efficient revolution. The goal is to get 10x revenue and have 3,600 people. We have now 4,100.'
I have contacted Palantir to request comment and will update this post if I receive a response.
Palantir's Second Quarter Performance And Prospects
Palantir stock peaked days after the company reported second quarter results – which exceeded investor expectations and featured an increase in the company's forecast for the current quarter, according to CNBC.
Palantir's revenue and profit were up sharply in the second quarter. Revenue jumped 48% to $1 billion – $60 million more than the LSEG consensus. Meanwhile, the company's net income soared 144% to $327 million – yielding an impressive net margin of 32.6%, CNBC reported.
Palantir's guidance for the third quarter was ahead of estimates. The Denver-based software analytics company estimated revenue in a range – the midpoint of which is $1.085 billion – $102 million more than the analysts consensus, according to CNBC.
Demand for Palantir's services appears strong. The total value of the company's contracts grew 140% to $2.27 billion and in July, the U.S. Army signed a $10 billion software and data contract with Palantir, wrote CNBC.
Artificial intelligence has helped propel this growth. 'It has been a steep and upward climb — an ascent that is a reflection of the remarkable confluence of the arrival of language models, the chips necessary to power them, and our software infrastructure,' Karp wrote in a letter to shareholders.
Short Seller Report Concluding Palantir Stock Is Overvalued
Analyst opinion is divided on Palantir's prospects. But short-seller Citron Research is extremely bearish – seeing Palantir's shares as 74% overvalued.
Wedbush is a Palantir bull. "Palantir remains one of our top tech names to own in 2025 and this deal represents another opportunity for PLTR to capitalize on while continuing to generate unprecedented traction for its entire portfolio across the federal and commercial landscapes," Wedbush analyst Dan Ives wrote in an August 4 note to investors featured by CNBC.
RBC considered the stock very pricey before the Q2 earnings release. 'We cannot rationalize why Palantir is the most expensive name in our software coverage,' RBC Capital Markets analyst Rishi Jaluria wrote in a note to clients. 'Absent a substantial beat-and-raise quarter elevating the near-term growth trajectory, valuation seems unsustainable.'
On August 18, Citron Research – which recently initiated a short position – declared Palantir's stock worth $40.12 a share. In the report, short seller Andrew Left of Citron Research shared his belief that the stock --which sports a price-to-revenue multiple of about 114, according to GuruFocus – has become 'detached from fundamentals,' reported Investopedia.
Citron's report arrived at this conclusion by comparing Palantir to OpenAI. Based on Bloomberg consensus projections, if Palantir was trading at 17 – the same price-to-revenue multiple as the ChatGPT maker – Palantir stock would trade closer to $40, noted Investopedia. However, "even that price would leave Palantir among the most expensive software as a service names names in history," Left said.
Palantir Insider Stock Sales
Palantir's insider stock sales could also be contributing to investor nervousness. Karp has sold over $2 billion worth of stock in 2024-2025, representing 21% of his total holdings, noted Yahoo!Finance.
This contrasts with other tech CEOs such as Elon Musk, who bought Tesla stock during its rise. Karp's selling continues under 10b5-1 plans, with Karp authorized to sell as many as 9.975 million additional shares, reported Yahoo!Finance.
Investor Nervousness About AI Bubble
Last September, generative AI was looking to me like a big dud. While people were using ChatGPT to help them draft emails and reports, there was no killer app – akin to what the iTunes store did for the iPod or the electronic spreadsheet did for personal computers, I wrote in the Boston Globe.
This week, MIT reinforced this point with hard numbers. "Despite $30B-$40B in enterprise investment into generative AI, this report uncovers a surprising result in that 95% of organizations are getting zero return," according to a study – based on 150 interviews with professionals, a survey of 350 employees, and an analysis of 300 public AI deployments – from MIT's NANDA Institute featured by SeekingAlpha.
The main problem appears to be integrating AI into the enterprise. "Just 5% of integrated AI pilots are extracting millions in value, while the vast majority remain stuck with no measurable profit and loss impact," noted the MIT NANDA Institute report.
Do enterprises failure to earn a return on their investment in generative AI bode poorly for Palantir's future? It is possible companies will stop investing so much in AI if they don't get better at integrating AI into their operations.
But I think the key is for companies to find ways to use AI to create new growth curves – something Palantir has succeeded in doing, I wrote in a Forbes post in February.
Ironically, Palantir's ability to grow into its high valuation depends on being able to sell more services to enterprises. Companies may find rivals like Databricks and Snowflake to be a better fit – which could be profitable for Citron Research.