Key Points
Palantir Technologies (NASDAQ: PLTR) has been the darling of the stock market since 2023. It has posted incredible growth over the last three years, but the tides have turned for Palantir stock in 2026. Although it last set a new all-time high in October 2025, it ended 2025 about 10% down from that high. It has had a poor 2026 and is now down around 35% from its high.
That’s a sizable discount on a stock that many point to as a poster child of what artificial intelligence (AI) adoption can provide for businesses. Furthermore, Palantir’s Q4 2025 results were excellent, and its 2026 guidance was fantastic as well. So, what’s behind the stock’s decline?
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Palantir’s stock is expensive
Normally, when you see a stock that has a great future, is executing at a high level, and is well viewed in the eyes of the market, yet is still declining, there’s only one culprit: valuation. And that’s exactly the case for Palantir. Palantir was one of the most expensive stocks on the market when its decline began, and even after its sell-off, it is still expensive. I think the forward price-to-earnings ratio is the most appropriate valuation metric for Palantir, as it’s rapidly growing and fully profitable. From this standpoint, Palantir still trades at over 100 times forward earnings.
PLTR PE Ratio (Forward) data by YCharts
Very few stocks trade at this level because of the fantastic results required to meet these expectations. If we believe a more realistic target for Palantir is in the 30x forward earnings range, then Palantir’s earnings projections must grow by 243%. For 2026 and 2027, Wall Street analysts expect Palantir’s growth to be 62% and 41%, respectively. That would only equate to 129% growth in two years, which means there’s around three to four years of growth already baked into the stock price.
Nobody is going to argue that Palantir isn’t growing rapidly or executing at a high level. It’s one of the best around, and many companies should look to Palantir as an example of how to run headfirst into an emerging trend. However, is Palantir’s stock worth paying a premium for three to four years’ worth of growth? I think the answer is no, and I believe the market’s sell-off is likely conveying the same sentiment.
As a result, I don’t think Palantir’s stock is worth buying on the dip. Several other rapidly growing AI stocks aren’t nearly as expensive as Palantir, and they can offer greater long-term return potential even if their growth rate is slower due to a more reasonable starting valuation.
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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
