Why Palantir Stock Jumped 37% Over Last Month

Palantir Technologies stock (NASDAQ: PLTR) has had a solid run, rising by about 37% over the past month, and remains up by about 4x since the beginning of the year, trading at about $69. Much of the recent surge has come after the U.S. elections. Investors are betting that a Donald Trump-led Republican administration will boost federal spending on national security and immigration, driving demand for Palantir’s software tools. Separately, Palantir’s co-founder Peter Thiel, has been an early Trump ally and is also viewed as having considerable influence in the inner circles of the incoming administration. As an aside, while AI is all the rage, we believe that  Intel Stock Is On Track For A Comeback.

There are a couple of other factors that have helped Palantir stock more recently. The company just said that its product lineup was granted FedRAMP High baseline Authorization from the Federal government. The authorization should enable U.S. government agencies to process sensitive unclassified workloads using Palantir’s cloud, possibly enabling wider deployment by government agencies. Moreover, Palantir also remains a top contender to join the Nasdaq 100 after the company transferred its stock listing to the Nasdaq from the NYSE in late November. The index is undergoing its annual reconstitution and the latest updates will be announced on December 13. Inclusion into the Nasdaq-100 will drive up demand for Palantir stock from exchange-traded funds.

The increase in PLTR stock over the last 4-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were -23% in 2021, -65% in 2022, and 167% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. So is Palantir stock attractive at current levels?

Palantir’s recent financial performance has been pretty strong. Over Q3 revenue was up 30% year-over-year to $726 million while net income stood at $143.5 million, up almost 2x compared to last year.  Margins have also been reasonably impressive with GAAP net margins coming in at 20%, while adjusted operating margins stood at 38%.  However, the company’s valuation is a concern.

At the current price level, Palantir stock trades at about 140x consensus earnings for 2025. In terms of revenue, the stock trades at over 44x forward revenue. We believe these are very high multiples, considering the company’s growth rates. Consensus pegs revenue growth levels of about 25% for both 2024 and 2025. In comparison, cloud data warehousing and analytics player Snowflake trades at about 12x revenues with its growth rates also being in a similar range. In fact, AI bellwether Nvidia (NASDAQ:NVDA) stock trades at just about 48x estimated earnings for the current fiscal, even though revenues are on track to more than double this year. (Should you Buy, Sell, Or Hold Nvidia Stock?)  Insider selling in Palantir stock has also been on the rise, a possible sign that some management personnel also believe the stock is fully valued.

[1] Returns as of 12/5/2024
[2] Cumulative total returns since the end of 2016