Palantir stock fell 15% on Tuesday despite reporting strong earnings.
Analysts have expressed concerns about Palantir’s high valuation after a massive rally this year.
Palantir’s price-to-earnings ratio is significantly higher than other fast-growing AI tech stocks.
The move: Palantir stock plunged as much as 15% on Monday to $105.32.
Why: The sharp drop came after Palantir reported solid first-quarter earnings results and raised its guidance for the year. The sharp down move despite the positive results signals that investors may be feeling uneasy about the company’s sky-high valuation.
Palantir reported earnings per share that were in line with analyst estimates and beat revenue estimates by $21.7 million to $883.9 million, which represents 39% year-over-year growth.
Palantir CEO Alex Karp said the company was “on fire,” and Wedbush analyst Dan Ives called the software firm a “generational tech name that we see as a trillion market cap over the next three years.”
Palantir’s current market value is about $250 billion, implying that Ives sees the stock quadrupling from here.
But the upbeat earnings and positive commentary still weren’t enough to appease investors.
What it means: Simply put, many investors see Palantir stock trading at nosebleed valuations. Its blistering rally this year has led to a 42% gain, even after Tuesday’s big drop.
The company trades at a price-to-earnings ratio of 561x, and a forward price-to-earnings ratio of 148x. For context, the S&P 500’s forward price-to-earnings ratio is about 20x and other fast-growing AI stocks like Vertiv and Arista Networks trade at a forward price-to-earnings ratio between 20x and 30x.
“It’s in the stratosphere,” William Blair Research analyst Louie DiPalma told Yahoo Finance on Tuesday.
DiPalma highlighted that Palantir is trading at 64x its 2026 revenue estimates, while the second fastest growing software company, CrowdStrike, is trading at 18× its 2026 revenue estimates.
“Palantir theoretically could fall by 70% and it would still be tied as the most expensive name in its entire software peer group,” DiPalma said.
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