Palantir's Stellar 2024 Performance Faces Steep Valuation Questions

Palantir's 379% surge in 2024 sparks optimism for future AI-driven growth despite high valuation.

Palantir's (PLTR) stock is off a little bit, down 0.29% on Thursday, but that can't hide its phenomenal performance in 2024. Its shares have risen 379% this year, and many investors are asking whether it can keep up the pace into 2025. Still, the valuation of the stock seems a bit steep. At $82.09, Palantir's shares trade at 174.9 times 12-month forward earnings, sharply up from the 58.27 multiple at the end of 2023. The stock also trades at 53.63 times sales, nearly four times higher than its value of 14.1 times at the close of last year. Yet Palantir is expected to grow earnings per share by more than 50% in 2024 and 24% in 2025.

This does make one ponder what is driving this growth. Palantir's success, as viewed by Wedbush analyst Dan Ives, is far more expansive than many of the more conventional financial fundamentals. He foresees businesses continuing to spend more in 2025 on their artificial intelligence, which will benefit Palantir directly as well as its solid government contracts along with its AI-driven software. It sets itself up to seize the vast expansion of enterprise-scale demand for AI in the firm's ability to manage more complex data and support data-driven decision-making.

Ives believes Palantir can become the next Oracle, as an expanding commercial business drives up its market position. He has an Outperform rating on the stock but believes that at $75, the stock has potential for a drop of 8.6% from the current level. In the end, the future of the stock of Palantir will depend not on the financial metrics but on whether it is going to dominate the AI sector or fade away.