Palantir’s Lofty Valuation Sparks Fears of a Sharp Pullback

Palantir US69608A1088

Fueled by unbridled enthusiasm for artificial intelligence, Palantir Technologies Inc.'s stock has charted a nearly uninterrupted upward trajectory since the start of the year. However, a chorus of prominent market voices is now growing louder, cautioning investors that a painful correction may be imminent. Despite robust operational performance, analysts and famed investor Michael Burry are drawing unsettling parallels to the dot-com bubble, pointing to significant downside risk.

On the business front, Palantir continues to deliver impressive results. For the third quarter of 2025, revenue surged 63% to $1.18 billion, marking the ninth consecutive quarter of accelerating growth. Its U.S. commercial business was a particular standout, expanding by a remarkable 121%. The company also posted a substantial 219% year-over-year increase in net profit. Strategic initiatives, including a partnership with Nvidia to deploy AI solutions in niche sectors, aim to sustain this positive momentum.

A Stark Warning of 75% Downside Potential

This strong operational story stands in stark contrast to mounting valuation anxieties. The most severe caution comes from RBC Capital Markets. Analyst Rishi Jaluria maintains a bearish stance, issuing a price target of $50 for 2026. Given the current share price, this projection implies a potential theoretical decline of up to 75%.

Jaluria's pessimism is rooted in Palantir's extreme valuation multiples. He highlights a price-to-sales ratio of approximately 117 based on trailing twelve-month figures. Furthermore, the stock is trading at a staggering 244 times the expected earnings for 2025. The analyst contends that such elevated multiples are unsustainable long-term, even for a company with accelerated growth, and a fundamental reassessment toward more reasonable metrics appears necessary.

Michael Burry's Historical Parallel

Skeptics have found a notable ally in Michael Burry, the investor renowned for his role in "The Big Short." Burry has publicly compared Palantir's current situation to that of "DiamondCluster" during the collapse of the internet bubble in the late 1990s. He sees clear parallels between today's AI fervor and the excesses of that era, warning that the market is currently pricing in a perfect scenario which may not materialize in the real economy to the extent anticipated.

Insider Selling Adds to the Cautionary Tale

Trading activity presents a mixed picture. While institutional investors such as Federated Hermes and Cerity Partners recently increased their holdings, insider transactions have been dominated by sales. Over the past 90 days, company executives disposed of shares worth approximately $168 million.

The central risk for investors now lies in the growing chasm between operational excellence and an astronomical stock valuation. Whether the shares can maintain their high altitude depends entirely on the company's ability to justify its extreme multiples through rapid growth before the market enacts the kind of harsh re-rating foreshadowed by analysts like those at RBC.