What’s Happening with Palantir Stock?

Tom Lauricella | Morningstar

With its history of products rooted in artificial intelligence computing, Palantir Technologies PLTR staged a monster rally in 2024 that lasted through early February. But the stock has come crashing down, losing 30% in less than two weeks.

At its peak on Feb. 18, Palantir shares had surged 65% in 2025 alone, with a 23% single-day jump following the company’s blockbuster earnings report on Feb. 3. However, a confluence of events, including news that the company’s chief executive is planning to sell upward of $1 billion worth of stock and warnings about cutbacks in government spending (on which the firm heavily relies), sent shares into a tailspin.

Morningstar equity analyst Mark Giarelli believes Palantir holds the potential for continued strong growth, and he says that after its big decline, the stock is trading in fairly valued territory. However, he stresses that the stock’s trajectory is subject to wide swings as investors continually assess the total addressable market for Palantir’s analytical software products. This recent volatility warns investors to consider their risk tolerance and choose entry points carefully.

Palantir’s AI Trade Rally

Palantir has been a leader among publicly traded companies in offering products grounded in AI technologies. Founded in 2003, it went public in 2020. Many of its clients are Western governments. “Palantir has been a darling of the AI trade since it started in the first quarter of 2023, but this went into hyperdrive over the past two quarters,” Giarelli says.

While the AI trade was initially focused on semiconductor makers (most notably Nvidia NVDA), during the third quarter of 2024, “we started to see a narrative emerge where software companies were going to be the ‘next leg’ of the AI trade,” Giarelli explains. At the time, there were growing expectations of commoditization within the physical supply chain for developing AI models. “As such, the economic value started flowing downstream to companies that ‘actually make AI work.’ Palantir is positioned perfectly for this because their ontological framework provides large language models with the necessary context for actionable insights and optimized decision-making.”

Then Palantir’s earnings for the fourth quarter of 2024 blew past expectations for revenue growth and margins. In particular, it showed strong growth among US commercial clients. “This is a company that prides itself in driving US exceptionalism, and this earnings report was proof in the pudding,” Giarelli says. “The stock absolutely ripped from around $75 to $120.” By the end of 2024, the stock was up some 340% in a year, while the Morningstar US Technology Index had gained just over 31%.

The rally continued into this year. After the company reported earnings on Feb. 3—showing 73% more US customers than a year ago and 63% growth in US commercial revenue year over year—the stock rocketed higher.

Why Is Palantir Falling?

As quickly as the stock rallied, its shares have now given back nearly all the gains posted since Feb. 3. One spark for the selloff was news that CEO and cofounder Alex Karp was looking to sell upward of 10 million shares after he’d already made heavy sales of the stock in 2024. At the same time, reports indicated that US Secretary of Defense Pete Hegseth directed Pentagon officials to ready plans for slashing the defense budget by 8% annually over the next five years.

“It was a double whammy,” Giarelli says. “This likely spooked investors, because 40% of Palantir’s revenue comes from US government contracts, and no one likes to see the CEO sell off shares.”

Some have theorized that the wide swings reflect heavy ownership among actively trading individual investors rather than big institutional investors, such as mutual funds and pension funds, which are assumed to have longer time horizons. However, Giarelli thinks this may be changing. “Retail versus institutional ownership is a hot-button issue,” he says. In 2021, it was estimated that individuals held some 60% of Palantir stock, with institutions at less than a quarter and insiders holding the rest. Now estimates suggest that ownership is evenly split between individuals and institutions, with BlackRock and Vanguard among the big shareholders.

What’s the Outlook for Palantir?

Giarelli calls himself “a huge fan of the stock” from a fundamental standpoint. Morningstar assigns Palantir a narrow moat rating, meaning it has durable competitive advantages it can sustain for the coming decade. That rating is based on the company’s intangible assets, such as its complex machine learning tools, as well as its high switching costs, which translate into strong customer retention.

Regarding concerns about a pullback in government spending, Giarelli sees positives and negatives for Palantir. On the negative side, political pressures are building for government spending to decline. However, he says, “there is no software company better equipped than Palantir to drive the cost efficiency gains” for government spending.

For Giarelli, what’s most important are the expectations for the total addressable market for Palantir’s products and its penetration of that market. “Those are the biggest drivers of the stock, and any investor needs to think about that.”

The potential total addressable market is massive, but so is the range of outcomes. Giarelli says that anywhere from $1.2 trillion to $1.8 trillion is possible. Morningstar’s base case is a TAM of $1.4 trillion. Given the scale involved, “$1.5 trillion vs $1.8 trillion vs $1.2 trillion makes a huge difference,” he says.

Giarelli is optimistic about Palantir’s potential to penetrate this massive market. He likens its potential to Oracle ORCL in the 2010s and Salesforce CRM in the late 2010s and early 2020s, “but faster.” His model calls for Palantir to post annual revenue of $40 billion by 2034, which would equal roughly a 10-year compounded annual growth rate of 34%. He believes this is realistic, “considering the company’s trajectory and structural tailwinds toward agentic solutions that make AI work.”

Is Palantir Stock a Buy, a Sell, or Fairly Valued?

While Palantir’s growth prospects may be strong, valuation is a critical variable for long-term investors. Giarelli pegs the stock’s fair value at $90 per share, which makes it a 3-star stock. “I believe the stock is fairly valued at the moment and investors at $90 are likely to receive a fair risk-adjusted return near the cost of equity,” he says. He notes that when viewed on other metrics, such as enterprise value to revenue, the stock looks “really expensive.”

Investors should also consider the stock’s volatility. “Not all investments are suitable for all investors,” he says. “Investors in Palantir should expect a moderate to high level of volatility because TAM and penetration expectations are repriced frequently, and this gets reflected in the market price, whether good or bad for the owner. That said, if you are bullish on secular tailwinds and believe the TAM is large, it is very possible the bull case emerges.” Such an outcome could take the stock north of $200 per share. “Alternatively, there could be an additional downside if the TAM and penetration disappoint.”

With the stock’s Very High Uncertainty Rating, the bands for its star rating are quite wide. Palantir would need to fall below $72.40 per share before it landed in undervalued territory. But Giarelli says that, given the current outlook, should Palantir become a 4-star stock, investors should “buy the heck out of it.”

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