Is Palantir a Smart Bet After a 124% Surge and Fresh AI Partnerships?

• Ever wondered if Palantir Technologies stock is actually worth its soaring price, or if you might be missing out on the next big tech winner?
• Shares have shot up an incredible 124.0% year-to-date and a staggering 151.1% over the last year, but have been bumpy lately. There was an 8.8% gain this week after a 13.4% drop last month.
• Recent headlines have focused on Palantir's expanding role in AI-powered government contracts and ambitious new partnerships. Both factors are fueling speculation around long-term growth and profitability. News of fresh collaborations with major defense agencies and private sector clients has kept the stock in the spotlight, driving volatility and plenty of debate about what comes next.
• Despite all the excitement, Palantir scores just 0 out of 6 on standard undervaluation checks. However, traditional scoring is only the start. Let’s break down the typical approaches to valuing Palantir, and stick around for an alternative that could give you the edge other investors are missing.

Palantir Technologies scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Palantir Technologies Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a common way to estimate a company's value by projecting its future cash flows and discounting them back to today's terms. This technique tries to capture what the business is truly worth, based on the money it can generate over time, rather than relying on current market sentiment.

For Palantir Technologies, DCF analysis starts with its latest reported Free Cash Flow, which stands at $1.79 Billion. Analyst forecasts look out several years, predicting continued growth in cash generation. By 2029, projections show Free Cash Flow ramping up to $7.00 Billion. Because Wall Street analysts only look a few years ahead, these more distant numbers are extrapolations, giving a broad but informative view of what the future could hold if current trends continue.

This all leads to an estimated intrinsic value of $73.41 per share using the DCF model. However, when compared to the current share price, the analysis indicates Palantir stock is trading at a 129.5% premium to its DCF value. This suggests the shares are significantly overvalued based purely on long-term projected cash flows, despite the company’s promising growth trajectory.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Palantir Technologies may be overvalued by 129.5%. Discover 914 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Palantir Technologies.

Approach 2: Palantir Technologies Price vs Book

The Price-to-Book (PB) ratio is a key way to value profitable tech companies like Palantir Technologies, especially when investors want to compare a stock's market value against what the business actually owns (its net assets). This multiple is a useful tool for highlighting whether the current share price is justified by Palantir's tangible book value, or if the market is betting heavily on future growth.

Growth prospects and company-specific risks are major drivers of what counts as a "normal" or "fair" PB ratio. Faster-growing, more profitable, or less risky companies often command higher PB multiples. Conversely, slower growers or companies facing bigger risks tend to trade closer to the value of their underlying assets.

Right now, Palantir Technologies trades at a PB ratio of 60.92x. For context, the software industry average is 3.41x, while peers average about 40.39x. These benchmarks highlight just how far Palantir stands out from the crowd, a signal of the market's high expectations for future growth and profitability.

Simply Wall St's proprietary "Fair Ratio" is designed to improve on industry and peer comparisons by factoring in Palantir's unique growth, profit margins, risk measures, and scale. It is a more precise benchmark because it adjusts for company specifics rather than assuming every software firm deserves the same multiple.

Comparing Palantir's actual PB ratio to its Fair Ratio reveals a significant gap. The current PB of 60.92x is far above the expected level for a company with Palantir's characteristics. This means the stock looks significantly overvalued based on this approach.

Result: OVERVALUED

PB ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1437 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Palantir Technologies Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is more than just numbers on a page. It is your unique perspective or "story" about a company, underpinned by your assumptions for fair value, future revenue, earnings, and margins.

Narratives connect where you think Palantir Technologies is heading with a financial forecast, ultimately helping you define what the stock is truly worth and why. This approach turns investing from a formula into a dynamic process, allowing you to back up your outlook with actual projected cash flows and earnings potential.

On Simply Wall St’s Community page, creating a Narrative is simple and accessible, putting the power of data-backed, story-driven investing in your hands. Narratives make it easy to track or compare your view of Palantir’s Fair Value alongside the current share price, guiding your decisions on when you might want to buy or sell.

Because Narratives update automatically as new news or earnings surface, you can always see how your assumptions stack up versus reality and adjust as the story evolves. For example, some investors think Palantir’s fair value is as high as $153.97, while others see it at $66.00. Narratives let you track both perspectives and see which thesis wins out over time.

Do you think there's more to the story for Palantir Technologies? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com