Wire · UK Today
With shares up by almost 700% over the last five years, Palantir Technologies ( PLTR -6.27% ) has been one of the biggest winners on the software side of the generative artificial intelligence (AI) megatrend. It has rapidly incorporated the new technology into its business model, leading to skyrocketing revenue and earnings. That said, Palantir's stock rally has slowed over the last 12 months, leaving investors wondering whether it can return to the explosive growth it enjoyed in previous years.
Let's dig into the pros and cons of the stock to decide what it might be worth by the end of 2027. PLTR Palantir Technologies $184.11 -$12.31 (-6.27%) NASDAQ · As of 4:00 PM ET 10/30/26 Why Palantir? Right now, AI-hungry investors are mostly limited to the infrastructure side of the opportunity.
This is where hardware companies like Nvidia and Micron build the chips that data center providers use to run and train large language models (LLMs). However, many leading consumer-facing AI software leaders are still privately held, putting them out of reach. Palantir convincingly bucks the trend.
Its business involves sifting through vast amounts of its clients' internal data to help them identify actionable insights like business trends, opportunities, and fraud. Generative AI proved highly synergistic with these tools, enabling operators to access insights via natural language prompts rather than advanced interfaces. Demand has been explosive.
Second-quarter revenue soared 93% year over year to $1.94 billion amid a surge of interest from U.S. commercial clients (which jumped 149%). American companies have shown a strong willingness to incorporate AI-related software into their operations. And Palantir is holding its own against industry rivals like Microsoft and Snowflake , which offer competing data analytics businesses.
Part of Palantir's economic moat may stem from a reputation for security, born of its extensive work with high-profile government clients such as the CIA, NATO, and the Department of Defense. It is also important to note that Palantir doesn't design and train its own AI models. Instead, it has designed its artificial intelligence platform (AIP) to work with a variety of third-party APIs created by leading developers.
This strategy allows the company to take advantage of the latest advances in the industry without dealing with the costs and complexity of developing its own LLMs from scratch. What is the downside? On the surface, there isn't much to dislike about Palantir because of its phenomenal business momentum and growth in the AI industry.
That said, even the best companies can become questionable investments when they are priced for perfection. And with a forward price-to-earnings (P/E) multiple of 89, Palantir towers above the S&P 500 average of 19. Valuation concerns are likely to be the main reason why the stock's rocket-ship rally has plateaued in 2026.
And while this slowdown has given time for fundamentals to catch up, there is still a long way to go. Image source: Getty Images. Palantir's political exposure could also be a cause for concern.
As a military and law enforcement contractor, it has worked closely with multiple Washington administrations, serving in controversial roles like assisting Immigration and Customs Enforcement (ICE) with migrant detection and deportation. These associations could cause brand damage and become a liability depending on how the political winds blow in the future. Where will Palantir be in 14 months?
Despite its great fundamentals, Palantir stock remains expensive, which limits the amount of future growth investors should expect. That said, the company is steadily growing into its valuation. And its business model is inherently resilient due to its subscription-based structure and high switching costs for clients.
These factors mean a big correction seems very unlikely. Considering the pros and cons, it's fair to assume Palantir will track with the S&P 500 average annual return of around 10%. Based on a $197 price on Oct. 29, that would put it around $216 by the end of 2027.
Investors may want to wait for the stock to get a little cheaper before considering a large position.
Source: The Motley Fool
