Palantir Technologies Inc. (NASDAQ: PLTR) was one of the best-performing stocks in 2024, posting a gain of over 300%. However, it’s been a different story in 2025. As of January 14, 2025, PLTR stock is down 14% for the year.
Undoubtedly, the recent performance of Palantir stock has many analysts throwing out the “I told you so” narrative. With the stock now trading below its 50-day simple moving average (SMA), it’s possible that PLTR stock may fall further.
Some of this is because institutional investors are now on board. Short interest in PLTR stock is relatively low, but it’s been noticeably higher in the last 60 days. Not surprisingly, that’s correlated with the drop in PLTR stock.
However, you would be wise not to assign too much significance to the stock’s recent price action. Moves like this with a growth stock like Palantir are normal. That doesn’t mean they’re not upsetting, particularly to investors with a lower risk tolerance.
Palantir continues to be an intriguing company that is at the forefront of the convergence of AI and software. There’s nothing that’s fundamentally changed in the last month other than the sentiment. Here’s what you should know before making any rash decision about PLTR stock.
A Perspective on PLTR Stock’s Valuation
For the last 18 months, the bearish argument against Palantir has come down to valuation. As of January 14, 2025, PLTR stock had a market capitalization of around $151 billion. However, even with the stock’s performance over the last 30 days, PLTR stock still has a price-to-earnings ratio of over 136x for its 2025 fiscal year and a price-to-sales (P/S) of over 55x.
That’s a high premium even for Palantir, which is classified as a software-as-a-service (SaaS) stock. This group tends to command a market premium among technology stocks, but it’s fair to say that even with that expected premium, PLTR stock is an outlier.
However, there may be a reason that Palantir commands a premium, which could come from the company’s ability to generate free cash flow (FCF). In the most recent trailing 12-month period, the company generated FCF of $983.3 million on revenue of approximately $2.6 billion. That’s a margin of 37%, which surpasses that of many companies in its peer group.
Analysts Are Raising Their Price Targets
The company’s FCF margin may be one thing that analysts are noticing. On January 6, 2025, Morgan Stanley (NYSE: MS) reiterated its Underweight rating on the stock as well as a price target of $60. However, that’s only part of the story. UBS Group AS (NYSE: UBS) initiated coverage on PLTR stock on December 19, 2024, with a Neutral rating and an $80 price target. In doing so, the firm acknowledged that Palantir commanded a “material multiple” ahead of its software peers.
The price targets are noteworthy for two reasons. First, a year ago, many analysts had a price target for PLTR in the $20 range. Some were even as low as $11. When firms like Morgan Stanley and The Goldman Sachs Group Inc. (NYSE: GS) start to set price targets around $60, Palantir's valuation begins to normalize.
Second, it means that the growth in PLTR stock in the latter half of 2024 was driven by institutional investors and not exclusively by retail investors who had been doing the heavy lifting.
Earnings Will Be the Next Catalyst
Palantir reports earnings on February 3, 2025. Analysts forecast the company to deliver earnings of 11 cents per share on revenue of $776.78 million. That would be a 175% year-over-year (YoY) gain in earnings and a 52% year-over-year increase in revenue.
However, if those numbers are accurate, the company would post a 26% YoY increase in full-year revenue. At face value, that kind of growth is encouraging. However, the company would need growth of two to three times that level to justify the current valuation.
Many retail investors took a long position when the stock was trading in the teens or even lower. Those investors won’t be scared away easily. And with institutional investors having to hold PLTR stock in their portfolios, $60 seems much closer to a floor for the stock than a ceiling.
That said, even in-line earnings could put more pressure on PLTR stock in the short term. However, if Palantir’s revenue rises to the upside, as it’s tended to do, it could easily set the stage for a run back near the $70 level.
