One of the most divisive stocks on the market, with some of the most ardent bulls and bears on opposing sides, has to be Palantir (NASDAQ:PLTR). Shares of the big data and AI company ended 2025 up more than 120%, as investors looking to capitalize on the AI trade have benefited from holding PLTR stock through the noise.
Palantir stock rose over 120% in 2024 but now trades at 166x forward earnings and over 100x sales.
Revenue grew 63% year-over-year last quarter, driven by surging commercial business alongside government contracts.
Michael Burry views PLTR as an obvious short but extreme momentum risk remains if AI spending accelerates further.
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Of course, now the question remains whether this momentum can be sustained in 2026, whether the overall spending and Capex cycle driving so many AI stocks like Palantir higher will continue or accelerate, and how much (if any) regulation comes down on companies in this space.
With surging commercial business supporting the company’s existing robust government business, there’s a lot to like about Palantir’s earnings and cash flow improvement (and its impressive revenue growth) seen in recent years. With that in mind, investors looking to play this stock either by buying, holding or selling PLTR stock do have a few things to consider.
Here’s why I think touching this stock in any fashion could be a dangerous game, and why I’m personally sitting on the sidelines.
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Stock chart heading lower
For starters, my bearish thesis around Palantir given its elevated valuation is well-known. Plaantir is a stock that’s now trading at an extreme premium to the market, which I’d argue is overvalued right now. At 166-times forward earnings and more than 100-times sales, Palantir’s valuation is well outside of the realm of reality, at least that’s my view.
For those with an eye on fundamentals and are trying to piece together what would need to happen in order for Palantir to double or 10x from here, the math becomes very, very difficult at a certain point. I’m just not seeing the sort of growth trajectory moving forward investors have clearly benefited from in recent years.
That’s not to say that extreme valuations can’t get more insane, and I might be wrong in the near-term. But I do think that the kind of premium investors are playing for overall revenue growth of around 63% year-over-year this past quarter doesn’t make sense. That goes double for those who think that as Palantir gets larger and matures further, this growth rate won’t deteriorate further.
If we do indeed see a slowdown in commercial spending around AI initiatives, Palantir could be one of the first (and biggest) dominos to fall. The downside with buying PLTR stock here is obvious in my view.
Andrii Iemelianenko / Shutterstock.com
A woman holding dollar bills looking uncertain
I think the narrative around those who own Palantir stock at current levels and are afraid to sell for fear of tax-related impacts is similar to the above thesis, but different in a way.
There are an unknown (but large) group of investors who may have put some capital to work in Palantir years ago that may be sitting on large gains. There may also be a significant number of investors who bought this stock recently, and are concerned about the risks I laid out above.
I think both groups have difficult decisions to make. On the one hand, those with large capital gains will take some sort of tax hit from selling their Palantir stock, and could be in for some decent emotional distress if this stock heads higher from here. On the other hand, those who may be sitting on some near-term losses after buying PLTR stock at its all-time high may be willing to hold longer, just to hopefully break even and start fresh.
I do think the bar for quarterly performance is abnormally high when it comes to Palantir right now, so I’m expecting some volatility with the company’s upcoming prints. With that in mind, this is a stock I think investors who are thinking about holding need to have a decent idea of what their investing time horizon is, and can model out their expected returns over that period.
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GameStop meme stock/short opportunity
On the flip side of the aforementioned risks tied to Palantir (which I’d argue are high), there’s also the reality that we’re living in a time that’s probably going to be defined by euphoria around the advent of artificial intelligence. Companies like Palantir that have direct ties to this trade do have the potential to outperform, so long as spending accelerates further and momentum continues to remain on the side of bulls.
In such a scenario, it may be feasible for PLTR stock to continue to skyrocket over the next year or two. I’ve heard some analysts and market experts equate today to roughly 1996 or 1997 in terms of the dot-com bubble. If that’s the case, and we’re looking at another two years of explosive gains for companies eschewing this technology, then Palantir could be the absolute wrong company to short.
Now, Michael Burry and others have come out and said that this stock is about the easiest no-brainer short opportunity in the market. While I agree with that sentiment over a five-year time frame, it’s entirely possible that some investors who place too large of a short position on this stock may get completely wiped out over the next year or two, if the scenario I highlighted above plays out.
So, the bottom line for me is that Palantir looks like a stock I’m not comfortable playing to the upside or downside right now. There’s just too much risk on either end of the spectrum, and I think that reality could keep new capital from flowing into this name at some point down the line. We’ll see.
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