Why Passing on Palantir Technologies Stock (PLTR) is a Big Mistake

Yahoo

2 days ago

For those who have been following Palantir Technologies (PLTR) for a while, it's clear that this isn't a stock that plays by the usual rules. Traditional valuation metrics barely scratch the surface of what's really going on. This company is riding the AI wave like no other in the software market, dominating not just the enterprise space but the government sector too. Investors are either all in or scratching their heads, wondering if it's just hype.
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Unlike typical software plays, Palantir's massive backlog of multi-year contracts and margins that would make most tech giants jealous make it a force that's hard to ignore. But there's always a catch: with a price tag that essentially prices in perfection, there is no room for execution mistakes or a hype cool-off, leaving Wall Street analysts split between cautious skepticism and outright optimism.
Ultimately, I believe Palantir is a can't-miss AI disruptor that deserves a premium valuation and a bullish rating. To lay out this case, this article breaks down the numbers, the buzz, and the very human debate that keeps this stock one of the most talked-about—and most polarizing—in the market.
Several metrics highlight the phenomenal business fundamentals behind Palantir's trajectory so far. However, one of the best ways to understand the solidity of Palantir's growth story, especially for the long term, is by examining its Remaining Performance Obligations (RPO). This number shows the future contracted revenue locked into its multi-year agreements.
As of Q1 2025, Palantir reported total RPO of $1.9 billion—almost half of the mid-term consensus forecast for annual revenue of $3.9 billion. This backlog coverage demonstrates the strong visibility and durability of the contracts Palantir is closing, providing the company with reliable long-term demand. Unlike businesses with primarily transactional revenues, Palantir's multi-year commitments offer a stable foundation that smooths out top-line swings and supports steady growth—a pattern that's held steady for the past couple of years.
Another key sign of Palantir's growth is the big jump in billings, which rose from $625 million in Q1 2024 to $925 million in Q1 2025—a solid 48% increase. When billings outpace recognized revenue, it usually means the backlog is growing, which ties directly to the strong RPO figure, both reflecting contract wins and renewals that will generate revenue in future quarters.
This blend of immediate revenue and durable multi-year customer relationships is a great sign. Together, these factors enable Palantir to forecast its revenue with a clarity not often seen in hybrid software-service companies, as the company's model isn't pure SaaS but rather includes deep, customized services through platforms like Apollo and Gotham.
Arguably, a big part of what might justify Palantir's steep 227x forward earnings multiple is the strength of its RPO. The market has strong confidence in Palantir's ability to consistently convert this backlog into recognized revenue and sustain healthy billings growth. Once Palantir's software becomes deeply embedded in a client's operations, especially in governments and large enterprises, it's both costly and difficult to replace.
Beyond that, Palantir has built a unique competitive moat by combining advanced data analytics software with tailored services. This blend is tough for typical SaaS competitors to match, particularly in sensitive sectors like defense, intelligence, and critical infrastructure.
The icing on the cake is that Palantir has managed to grow margins alongside revenue at an impressive pace. The Rule of 40 metric highlights this: software companies are considered healthy when their revenue growth plus profitability margins total at least 40%. Palantir crushed this in Q1 2025, posting 39% year-over-year revenue growth and a 44% adjusted operating margin—a combined 83%, after averaging 67% in fiscal 2024.
Simply put, Palantir not only exceeds the Rule of 40 but also delivers a rare combo of fast growth and strong margins—something no other large-cap software company currently matches.
Despite the countless bearish arguments about Palantir's high valuation multiples, much of my bullishness comes from insights by Wedbush analyst Dan Ives.
As a Palantir perma-bull, Ives sees the company as a 'generational opportunity' ready to capitalize on the massive AI revolution, with $2 trillion in software spending expected over the next three years. He believes Palantir is leading the pack in AI adoption across both commercial and government sectors. Given this untapped potential, avoiding Palantir at this stage could mean missing out on one of the most transformational tech stories of the last 20 years.
Back in August 2024, when Palantir was trading around $30 per share, critics called it expensive. So, of course, bears will say it's costly at $130, too. But if investors had avoided transformational tech stocks over the past two decades simply because they looked pricey, they'd have missed out big time.
Just like Nvidia (NVDA), before it became a giant in the AI space, it traded at sky-high P/E multiples in 2023, sometimes close to or above 200x. Palantir is still in its early stage, centered on disruptive potential and future growth, far from any plateau. And with the AI revolution driving Nvidia's story, few today argue that its valuations are irrational or unlikely to be sustained—something many still question about Palantir.
Wall Street leans more toward skepticism than optimism when it comes to Palantir's stock. Among the 18 analysts covering PLTR over the past three months, only three recommend buying, 11 remain neutral, and the other four suggest selling. PLTR's average 12-month price target stands at $100.13, implying a potential downside of approximately 25% from the current share price.
Trying to value Palantir through traditional metrics hasn't yielded much clarity in recent years. In my view, that's because Palantir isn't operating on a traditional trajectory. When a company is positioned at the heart of a technological revolution, like AI, and is executing at a high level across both commercial and government verticals, as Palantir is, investor appetite can easily eclipse conventional valuation logic.
To skeptics and value purists, that may sound like an excuse to overlook fundamentals. But so far, Palantir continues to consistently beat expectations, quarter after quarter. And in a market where momentum often drives sentiment, that kind of consistent outperformance matters. With a growing backlog, strong margins, and a competitive moat that's only deepening, there's little sign that the company's momentum is slowing anytime soon.
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