Palantir Technologies stock (NASDAQ: PLTR) has had a solid run, rising by almost 4x since the beginning of the year to about $66 presently. Several factors have driven this surge. While Palantir’s core business of AI has remained the most sought-after investment theme this year, the company is also benefiting from sizable U.S. government and commercial contract wins, a potentially more favorable political environment, and some technical factors as well. Here’s a closer look at what’s been driving Palantir stock higher of late.
Palantir has emerged as a “Trump trade” of sorts, with investors anticipating that a Republican administration under Donald Trump could ramp up federal spending on national security and immigration. The U.S. government is Palantir’s biggest customer, with its tools widely deployed by agencies including CIA and NSA to combat terrorist threats and assist in identifying and deporting illegal immigrants – areas that will almost certainly gain priority under Trump. Palantir’s founders, including Peter Thiel – one of the few prominent tech executives to back Trump during his first term – are also seen as having significant influence within the inner circles of the incoming administration. While Tesla stock has been among the biggest Trump beneficiaries, there are considerable risks to consider. Tesla Stock And Trump: Risks Galore
There are a couple of technical factors driving the stock’s move as well. The company moved its stock listing to the Nasdaq from the NYSE on November 26 and the company said that it anticipates meeting the eligibility requirements of the Nasdaq-100 Index. This could could drive up demand from exchange-traded funds. Separately, Palantir was also recently included in the S&P 500 index and this could also be boosting visibility for the stock while broadening its appeal to institutional investors. A couple of recent rating upgrades by Wall Street analysts have also helped the stock.
Palantir’s recent financial performance has been pretty strong, too. 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%. Sales to the government rose 33% to $408 million over the last quarter. The company also raised its guidance for FY’24, led by stronger demand from the commercial segment in the United States. The company expects U.S. commercial revenue for the year to grow by over 50% to at least $687 million. Palantir has a Rule of 40 score of 68% for the last quarter. The metric, which is used to judge the health of software companies, adds the revenue growth rate and profit margins (30% and 38%, respectively in Palantir’s case). This indicates that Palanir is scaling its business efficiently, balancing growth and margin expansion.
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 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 what’s driving PLTR’s performance, and what are the positives and negatives for the stock?
At the current price level, Palantir stock trades at about 138x consensus earnings for 2025. In terms of revenue, the stock trades at over 43x 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 stock trades at just about 50x 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 sign that insiders also believe the stock is fully valued. While markets have rallied following the election, the risk of inflation persists amid threats of tariffs and deportation policies. These factors could impact the interest rate environment and, in turn, the valuation of high-growth stocks like Palantir. (S&P To Crash More Than 40%?)
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