Palantir Stock Faces Challenges Amid High Valuations and Market Sell-Off

Palantir Technologies Inc. (PLTR 6.27%) has recently been affected by a broader stock market sell-off, resulting in a roughly 25% decline from its all-time high. The current stock price drop has led many investors to question whether this presents a buying opportunity. However, skepticism remains regarding Palantir's valuation, which is seen as excessively high given its current performance. The company's stock has become increasingly attractive due to its designation as a 'pure-play' investment in artificial intelligence (AI), with its data analytics software being established longer than many competitors. However, despite being a favored choice by institutional clients including various governments, the current valuations—79 times sales and 165 times forward earnings—raise red flags about sustainability. Recent revenue growth of 36% year-over-year is commendable but not sufficient to justify such steep valuations. For context, Nvidia, another prominent AI stock, achieved significantly higher revenue growth with more reasonable pricing relative to its profits. Analysts suggest that software companies typically trading at 10-20 times sales are more realistic benchmarks. Therefore, the author indicates a price point of approximately $23 as a more reasonable entry point for investing in Palantir, signaling that the stock could see a further decline before it becomes viable for purchase. The article concludes that investors should reassess their AI portfolio, emphasizing that there are many more reasonably valued opportunities in the market compared to Palantir. This thorough review of Palantir's financials has been analyzed and curated with the help of artificial intelligence to ensure accuracy and objectivity.