Palantir Technologies (NASDAQ: PLTR) has become one of the more notable stocks in the artificial intelligence (AI)-driven bull market. It has used AI since its 2003 founding, but it didn’t IPO until late September 2020. Its Artificial Intelligence Platform (AIP), released in April 2023, is what really helped the company deliver eye-popping productivity gains for its clients.
AIP has helped Palantir generate massive gains in its stock price. The stock’s all-time low was in December 2022, and since then, it has risen by almost 2,500%. Despite those returns, Palantir may struggle to sustain its share price gains.
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The current market environment suggests Palantir stock is more likely to fall than rise over the next 12 months. Here’s why.
The problem with Palantir stock
Palantir has run into a problem that may limit its near-term upside — valuation.
The software-as-a-service (SaaS) stock‘s trailing price-to-earnings (P/E) ratio of 149 has generally been ignored by investors, largely because several one-time charges skew the metric. But such charges do far less to skew forward P/E ratios, and at a forward multiple of 109 makes Palantir stock appear overvalued.
The price-to-sales (P/S) ratio of 73 adds confirmation to the overpriced argument. The average P/S ratio for the S&P 500 is 3.8, and even the more notable tech growth stocks tend to have P/S ratios under 30. The higher the P/S ratio, the less room there is for any near-term upside.
But how about revenue growth?
The company’s continued sizeable growth rate does offer some hope. The $3.6 billion in revenue for the first half of 2026 grew by 89% year over year. Analysts forecast an 83% increase for all of 2026. Such growth means it keeps $0.55 of every revenue dollar as profit. It also offers some relief to the aforementioned valuation metrics if the stock price stays steady and could even create upside if the positive sentiment around AI remains intact.
Unfortunately for shareholders, analysts forecast revenue growth to scale back to just 49% in 2027. Although that is still an impressive growth rate, investors tend to punish stocks for slowing growth. That could bode poorly for the stock one year from now.
Palantir’s valuation also leaves it vulnerable to broader market sentiment. Amid the AI boom, the Shiller P/E ratio has reached 42, near all-time highs. That elevated rate does not guarantee an AI bust will come soon. Still, considerable drops in the Shiller P/E have always occurred after previous spikes. If the market dives and/or sentiment about AI turns negative, it could take Palantir stock down as well.
