(Bloomberg) -- Palantir Technologies Inc.’s breakneck rally shows no sign of letting up as investors remain captivated by its artificial intelligence promise despite one of the most expensive valuations among US stocks.
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Shares of the data-analysis software company closed at a record for a third consecutive day Tuesday, pushing their gain for the year to 76%. While that’s good enough for second-best on the S&P 500 Index, it has Palantir trading at a staggering 205 times projected earnings over the next 12 months, a hefty premium to the broader market’s multiple of 22 times.
“You’re starting to see almost like a Tesla effect where valuations don’t really matter because there are these true believers in the company,” said Paul Marino, chief revenue officer at Themes ETFs. Those investors see “opportunities with everything that’s going on in the world today, whether that be on the defense side, whether that be on the transaction side, data side or AI side.”
Shares slumped as much as 5.7% Wednesday, on track to snap the three-day streak of gains.
Palantir’s cult-like momentum rally — which follows a 340% gain in 2024 and a rise of 167% in 2023 — stands in sharp contrast to a lukewarm reception from Wall Street analysts. The stock has only eight buy equivalent ratings and is dominated by 16 holds, with six sells, making it one of the lowest rated S&P 500 stocks, according to data compiled by Bloomberg.
But bullish investors say the Street is overlooking a company poised to benefit from the current geopolitical and macroeconomic backdrop. Palantir works with the US military, which has doubled its use of the Maven AI system, and intelligence agencies. It recently added NATO as a customer and is partnering with Fannie Mae to launch an AI-powered crime detection unit. It’s also building out its commercial and international clients, both large potential growth areas.
Palantir’s rebound from April has been underscored by a broader market pivot as investors navigate Trump’s on-again, off-again tariff rhetoric and search for companies offering relative safety, including those that can show solid future growth. Palantir forecasts sales will rise to $3.9 billion for the calendar year 2025, a 36% increase from the previous year, and will continue to grow. This year’s free cash flow is forecast to top $1.5 billion, a more than 30% increase on the year.
“The market is having capital flow back into areas of the market that they believe could have idiosyncratic growth,” said David Wagner, portfolio manager at Aptus Capital Advisors LLC. “And Palantir fits that bill if you could stomach the valuation.”
The recovery in technology stocks has shifted toward software and away from hardware, also giving Palantir a boost. It has also become a beneficiary of Elon Musk’s DOGE effort to cut federal spending; the company has continued to land US government contracts during the Trump administration.
In another comparison to Tesla, the stock has likely gotten a lift from the retail crowd. In the last week, it was the third most active behind Tesla and Nvidia Corp., according to data from Interactive Brokers. Palantir has stayed in the third-place spot for much of the year, according to Steve Sosnick, chief strategist at Interactive Brokers.
Of course, stocks that have rapid rallies like Palantir can get hit hard on the downside — it shed more than 40% from a February peak through the early April nadir, mirroring some of the selling seen in other big technology shares. In addition to middle-of-the-road ratings, Wall Street analysts think the current rally has gotten ahead of itself. The average price target of about $103 implies roughly 19% downside from where shares currently trade.
Palantir also has an increasingly high bar to clear to keep the stock grinding higher — anything short of outperformance could weigh on shares, as was seen in the brief selloff following last quarter’s earnings report.
“They have to deliver” to keep momentum going forward, said Ted Mortonson, managing director at Robert W Baird & Co. “They cannot have any hiccups.”
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--With assistance from Subrat Patnaik.
(Updates stock move after market open.)