Palantir Stock is Skyrocketing, Is It A Buy?

$Palantir Technologies Inc.(PLTR)$

Palantir has surged 1,700% from its 2022 lows and is up 23% today following the release of its Q4 2024 earnings report. The stock appears unstoppable, and I keep getting asked whether it's a good buy at current levels. In this article, I'll quickly break down Palantir's earnings, highlight key takeaways, and share my thoughts on its valuation. So, let’s dive right in!

Q4 2024 Earnings Highlights

After reviewing the earnings report, I took note of the most important highlights.

• U.S. revenue grew 52% year-over-year and 12% quarter-over-quarter, reaching $558 million.

• U.S. commercial revenue surged 64% YoY and 20% QoQ.

• U.S. government revenue increased 45% YoY and 7% QoQ.

Palantir’s U.S. business is experiencing explosive growth, and that momentum appears to be accelerating.

• Total revenue increased 36% YoY and 14% QoQ to $828 million.

• The company closed a record-setting $83 million in U.S. commercial total contract value, a 134% YoY increase.

• Customer count grew 43% YoY and 133% QoQ.

• Operating cash flow hit $460 million, representing a 56% margin.

This was a very strong quarter, and congratulations to Palantir shareholders—the company continues to perform exceptionally well.

Fundamental Analysis

Full-Year 2024 Performance

• U.S. revenue grew 38% YoY to $1.9 billion.

• U.S. commercial revenue increased 54% YoY, while U.S. government revenue rose 30% YoY.

• Total revenue reached $2.87 billion, reflecting 29% YoY growth.

• Operating cash flow totaled $1.15 billion, with a 40% margin, reinforcing Palantir’s profitability.

Balance Sheet Strength

Palantir’s balance sheet is one of the strongest I’ve seen:

• Cash & cash equivalents: $2.1 billion

• Marketable securities (liquid assets): $3.1 billion

• Total current assets: $6 billion

• Total liabilities: $11.25 billion

With more cash on hand than total liabilities, Palantir has ample liquidity and no financial stress. Even if it paid off all its liabilities today, it would still have a significant cash cushion, making this one of the cleanest balance sheets in the market.

Key Performance Indicators (KPIs)

Next, let’s analyze some of Palantir’s key metrics.

Total customer count in the latest quarter reached 711, marking a notable acceleration in growth. In fact, this was Palantir’s strongest customer growth quarter in two years. U.S. commercial customer count has skyrocketed—from just 17 customers in Q4 2020 to 382 customers in the most recent quarter. This segment is expanding dramatically quarter after quarter. Commercial revenue also saw a substantial boost. It was $317 million last quarter, and in this quarter, it surged to $372 million, showing strong momentum. Fundamentally, Palantir looks pristine, aside from the high stock-based compensation.

Guidance

Palantir has provided guidance for Q1 2025 and the full year:

• Q1 2025 revenue is projected at $860 million, representing 36% YoY growth.

• Full-year 2025 revenue is expected to reach $3.7 billion, implying 30% YoY growth.

While revenue growth is currently accelerating at 36% YoY, Palantir's guidance suggests a slight deceleration in the second half of 2025. However, the company may be conservative in its projections, meaning potential upward revisions later in the year.

Notably, U.S. commercial revenue is expected to exceed $1.08 billion, with at least 54% growth, signaling continued rapid expansion in this segment.

Cash Flow

Now, let's move on to the cash flow statement. Operating cash flow for the year came in at approximately $1.15 billion, up significantly from $712 million in the previous year—a 50% year-over-year increase, which is an impressive improvement.

Another standout detail is Palantir’s capital expenditures (CapEx), which totaled just $12.6 million for the entire 2024 fiscal year. This means the company generated over $1 billion in operating profit with minimal spending. In fact, last year, Palantir's CapEx was $15 million, so it actually declined by $3 million year-over-year—all while operating cash flow increased by over $400 million.

This efficiency means that nearly all of Palantir’s operating cash flow converts into free cash flow, contributing to its rapidly growing cash position.

However, not everything is perfect. A major downside is stock-based compensation, which totaled $692 million for the year—more than half of operating cash flow. This is a significant amount, and personally, I am not a fan of such high stock-based compensation. This is one of the few negatives in Palantir’s financials.

Valuation

However, in the stock market, a company’s fundamentals and stock price can diverge in the short term. So, let’s talk about valuation. As of now, Palantir’s market cap is approximately $230 billion. With $1.15 billion in free cash flow, the stock is trading at 200 times free cash flow—an extremely high valuation. The company is also trading at 84 times sales, which is another very high multiple. These numbers suggest that Palantir is currently an expensive stock, and investors should carefully consider valuation before making a decision.

Palantir: A Great Business, But an Expensive Stock

To be clear, Palantir is an outstanding business with strong fundamentals. However, the price investors are currently willing to pay for it is extremely high. Let's take a quick look at Palantir’s growth metrics using Stock Unlock’s free-form tool, examining data since December 2022.

• Revenue growth: Up 40% since the end of 2022.

• Price-to-sales ratio: Increased by 1,000%.

• Stock price: Up an astonishing 1,353%.

This data highlights a critical point: while Palantir’s business is growing, the majority of its stock price surge comes from multiple expansion, meaning investors are simply willing to pay more for the same level of earnings. The stock's rise isn’t fully driven by fundamental growth—it’s fueled by investor enthusiasm, hype, and FOMO (fear of missing out).

Currently, valuation doesn’t seem to be a concern for the market. Palantir is trading at 200 times free cash flow and 84 times sales, making it clear that sentiment, not fundamentals, is driving the price.

Is Palantir Priced for Perfection?

To put this valuation into perspective, I ran a reverse discounted cash flow (DCF) analysis to determine what level of growth the market is currently pricing into Palantir’s stock.

• The model assumes 50% annual free cash flow growth over the next five years.

• It factors in a 3% dilution rate due to Palantir’s high stock-based compensation.

• The stock maintains a price-to-free-cash-flow multiple of 50.

Even with these very optimistic assumptions, this scenario would only generate a 10% annual return on the stock.

Now, let’s assume Palantir grows free cash flow at 36% annually (which is still very strong). If that happens, the stock would actually generate negative or flat returns over the next five years at today’s valuation.

This underscores a key investing principle: if you overpay for a stock, even if the business performs well, your returns may be disappointing.

Conclusion

Why I’m Not Buying Palantir Stock? My investment strategy focuses on buying businesses where 15-20% growth can translate into 20%+ stock returns, meaning the market is underpricing their potential. Palantir, on the other hand, is already pricing in an enormous amount of future growth, which significantly increases the risk.

I've noticed a lot of FOMO in investing communities, with many people feeling like they’ve "missed out" on Palantir’s run. To be clear, I have completely missed out on Palantir too—I don't own the stock and have made no gains from it.

However, I’m perfectly fine with that for two reasons:

1. It doesn’t fit my investment strategy.

2. I have met my own investing goals without owning Palantir.

My goal is to consistently outperform the S&P 500 over the long term, which I’ve been able to achieve without taking on the risks associated with Palantir. You don’t need to own the most hyped-up stocks to be a successful investor.

It's also important to remember: someone will always be doing better than you on a particular stock, and that's okay. I know investors who have significantly outperformed me with Palantir, SoFi, and other stocks. But I’m genuinely happy for them. Different strategies can still lead to success. So, congratulations to everyone who made big gains on Palantir! 🎉 You absolutely Nailed it.

That being said, I believe Palantir is currently overvalued and very risky. Palantir’s stock is risky—its valuation is sky-high, and it’s unclear if future growth can justify the current price. That’s my honest take. I might have been wrong on the way up, but I stand by my view that Palantir is an expensive stock today, and I won’t be buying it at this price.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub