Going Into Earnings, Is Palantir Stock a Buy, a Sell, or Fairly Valued?

Palantir Technologies is set to release its second-quarter 2025 earnings report. Here’s Morningstar’s take on what to look for in Palantir’s earnings and stock.

Key Morningstar Metrics for Palantir Technologies

• Fair Value Estimate: $100.00
• Morningstar Rating: ★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

Earnings Release Date

• Monday, August 4, after the close of trading

What to Watch for in Palantir Technologies’ Q2 Earnings

• Everything Palantir is doing right now is operationally remarkable. Nearly every single key performance metric is going “up and to the right” at an unprecedented rate. Simply pick your KPI.
• Deals over $1 million are gaining steam. We believe this is a more valuable signal than deals over $10 million in terms of mass adoption. More players are taking small bites at the apple, and the switching cost moat is trending positively. The high friction with switching vendors suggests such deals will become more lucrative over time.
• Continued government penetration in both the United States and Europe will be closely watched, with some Middle Eastern revenues as a wild card.
• In the US, the Golden Dome could be a massive tailwind, with some estimates of total associated expenditure in the trillions. Palantir could be the software backbone of the system, so continued stickiness in government revenues (which we fully expect) would be a good sign.
• Europe is often viewed as an AI adoption laggard. CEO Alex Karp has publicly admonished the region for this, and we tend to agree, but the firm was able to secure some Maven AI smart-system-led contracts. Due to relative underpenetration, there is some significant optionality for price appreciation, should the company do well here.
• Reading the tea leaves, Trump brought a lot of tech CEOs with him earlier this year on a Middle East trip to stir up investment. We dont believe there is anything imminent, but if the Gaza situation resolves, there could be an opening for the normalization of relations between Saudi Arabia and Israel, which could open a new market for Palantir.
• Continued commercial penetration is pretty self-evident. We need to see more use cases outside of what has already been digested by the market, such as Palantir’s software helping Wendy’s with supply chain issues and hospital systems with bed turnover.

Fair Value Estimate for Palantir Technologies

With its 2-star rating, we believe Palantir Technologies ’s stock is overvalued compared with our long-term fair value estimate of $100 per share, which implies a 2025 enterprise value/sales multiple of 57 times.

In our opinion, the primary driver of the stock’s value is the total addressable market Palantir’s software can ultimately serve. TAM size is truly a trillion-dollar question that is unfortunately laden with assumptions. Our base case has Palantir’s TAM growing to $1.4 trillion by 2033. From today, we assume growth is non-linear, with a slight inflection higher from 2028-30 to rates nearing 35% per year.

Read more about Palantir Technologies’ fair value estimate.

Economic Moat Rating

We believe Palantir warrants a narrow moat rating, based on switching costs and intangible assets. Palantir differentiates itself as the only AI company with a framework that organizes disparate datasets and facilitates optimized decision-making. This machine-learning framework that identifies opaque yet significant relationships in data and translates solutions to the end user is referred to as the “ontology framework.” Palantir engineers a read-write feedback loop that enables connectivity throughout a business, creating an accessible analytical framework to drive nuanced decision-making that improves over time.

Palantir often competes against internal information technology departments because it also analyzes data and create information dashboards for interpretation. This traditional in-house IT and data aggregation framework often results in patchwork solutions that are cumbersome, difficult to improve, and costly to scale.

Read more about Palantir Technologies’ economic moat.

Financial Strength

We view Palantir’s financial position as healthy and improving. As of March, Palantir had nearly $1.0 billion in cash and $4.4 billion in marketable securities (mostly US Treasury securities) and no debt. Its liquidity position improved by $1.5 billion in 2024.

Palantir now has two full years of GAAP profitability under its belt, with 2024 over twice as profitable as 2023, and we expect rapid growth and profitability to continue.

Palantir has had dilution concerns revolving around high stock-based compensation, which puts a non-cash drag on profitability. We saw a significant one-time stock-based compensation expense of $120 million in the fourth quarter of 2024, triggered by the stock price exceeding $50 per share, but we do not expect this to be a trend. Stock-based compensation averaged 34% of revenue from 2021-2023, but this figure has decreased as the company has grown. Palantir also announced a share repurchase plan in 2023 of up to $1 billion to address dilution concerns.

Read more about Palantir Technologies’ financial strength.

Risk and Uncertainty

We assign Palantir a Very High Uncertainty Rating. The company’s biggest uncertainty is the broad potential size of the total addressable market its software can serve and the level of customer penetration it can achieve.

We like the versatility of the ontology framework that makes Palantir software valuable to almost any company. This versatility creates significant upside potential. Unfortunately, because the TAM estimate is so uncertain and is one of the largest drivers of the stock’s valuation, downward share price corrections can be severe and painful when there is an unfavorable change in investors’ perception of future market size. We have modeled multiple scenarios for future demand, and the resulting range of valuations is extreme, illustrating the massive uncertainty investors face. If our bear case on TAM emerges, the shares will likely prove worth far less than we expect.

Read more about Palantir Technologies ’s risk and uncertainty.

PLTR Bulls Say

• Palantir has developed the premier AI software, primed to take advantage of the trend toward digitization and automation. AI software maintains a strategic position on the AI-value chain.
• Palantir’s ontology framework and AI orchestration allow for the democratization of machine learning. Its software is useful to employees at all levels of a business to drive efficiency enhancements.
• The new boot-camp-style sales effort has allowed Palantir to achieve rapid growth in the US commercial segment. The US commercial business has a large total addressable market.

PLTR Bears Say

• Palantir’s end markets are confined to entities that coalesce with Western ethos. This caps the total addressable market.
• The decreasing cost of AI inference and the convergence of LLMs will result in lower barriers to entry in the AI decision-making software industry that Palantir currently dominates.
• Palantir’s dual-class share structure opens the door for overzealous noncore investment opportunities without common shareholders’ checks and balances.

This article was compiled by James Ubi.