Is Palantir the Ultimate Hypergrowth Stock?

Palantir (PLTR +0.14%) has been one of the most popular artificial intelligence (AI) stocks since the AI arms race began in 2023. Its AI platform has become more and more popular with each passing quarter, leading to huge growth for the stock.

But is it the ultimate hypergrowth stock? Let’s take a look, because the answer may surprise you.

Image source: The Motley Fool.

Palantir has deep ties to the government

Palantir originally started off as an AI-powered data analytics platform that was utilized by military and intelligence agencies. Eventually, this platform expanded into other government sectors and also onto the commercial side.

While government revenue continues to make up the majority of Palantir’s total, its commercial business, especially in the U.S., is growing faster. This recent growth spike is thanks to generative AI, a technology that Palantir has integrated into its platform to automate processes and drive increased insight.

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NASDAQ: PLTR

Palantir Technologies

Today’s Change

(0.14%) $0.21

Current Price

$146.49

Key Data Points

Market Cap

$350B

Day’s Range

$144.47 - $148.30

52wk Range

$66.12 - $207.52

Volume

34M

Avg Vol

50M

Gross Margin

82.37%

This integration has led to demand that Palantir hasn’t seen before, and resulted in U.S. commercial revenue spiking 137% year over year, with U.S. government revenue rising 66% year over year. Palantir is a global company, but its overall commercial growth rate of 82% and government rate of 60% showcase that the U.S. is clearly adopting AI faster than any other region in the world (excluding China). Regardless, those are impressive growth rates that easily land Palantir into the hypergrowth classification, but is it the ultimate stock to own in this area?

The problem with Palantir’s stock has never been its growth prospects. Investors are satisfied with what Palantir is delivering; the issue is the price you must pay to own the stock. At 108 times forward earnings, there’s a massive growth premium baked into the stock.

PLTR PE Ratio (Forward) data by YCharts

Wall Street is essentially pricing Palantir’s earnings to double this year. However, for it to get to a more reasonable price tag (say about 25 times forward earnings), it must double its earnings in 2027 and again in 2028. That’s a tall task for any company, and the current price tag essentially assumes that Palantir can easily triple its earnings from here.

That may be possible, but that’s a steep price to pay for a stock. As a result, I don’t think Palantir is the ultimate hypergrowth stock, as there is just too much success priced in.

Palantir could triple its earnings over the next three to five years, but that’s what’s required for the stock to become reasonably valued. Posting gains from the current level requires even better business results. That’s not a compelling investment thesis, and I think there are far better AI investments out there than Palantir.