Is Palantir Stock a Buy Before 2025?

With shares up 41% since November 5, Palantir Technologies (PLTR 8.54%) straddles two massive hype cycles in the stock markets: generative AI and the Trump presidency. Let’s explore how these potential opportunities could play out for the data analytics business in 2025 and beyond.

AI used to be cool

While AI has gained momentum with the launch of OpenAI’s ChatGPT in late 2022, Palantir has been working on a somewhat related technology, big data analytics, since its founding in 2003.

This field involves processing large amounts of information to discover trends, patterns, and other actionable insights. It can help organizations detect fraud, optimize workflows, or detect potential threats.

Big data analytics can be seen as a precursor to major language models (LLM) like ChatGPT. And Palantir has been rapidly adding generative AI capabilities to its existing platforms to help them work faster and provide real-time insights.

These features are particularly useful for military and law enforcement customers, where Palantir’s software can help operators identify and gain real-time threat intelligence during missions.

Palantir is already using AI to help Ukraine’s armed forces target military targets during their war with Russia. And in June, the company partnered with Israel to work on combat-related technology.

The Trump effect

Palantir’s high-stakes business model makes it easier to promote. However, Donald Trump’s victory seems to have set things in motion. Judging by the stock’s 41% rise since November 5, many investors see the new administration as a potential catalyst for growth.

In the third quarter, Palantir earned $320 million (about 44% of all sales) from U.S. government customers, including the Department of Defense and the Department of Homeland Security.

Under the previous Trump administration, Palantir played a role important role in immigration policy, assisting Immigration and Customs Enforcement (ICE) with deportations. The new administration plans to ramp up those efforts, with Trump himself promising the largest deportation in U.S. history.

That said, it’s unclear how much Trump’s agenda will actually benefit Palantir, which works with ICE in a partnership software as a service (SaaS) called Falcon. According to the Business Insider news site, the company earned only $127 million from the investment. contract between 2013 and 2022, go out to about $14 million per year. That’s a drop in the ocean for a company that expects revenue of about $2.8 billion this year.

Business Insider also reports that ICE is working on replacing Falcon with a custom tool called RAVEN.which will use publicly available data, unlike Falcon, which works with data already in the agency’s possession.

And while While previous Republican presidents have generally pursued a hawkish foreign policy, Trump has indicated that he would like to see the conflicts in Ukraine and the Middle East end. Palantir investors probably shouldn’t bet on increased military spending in 2025.

Do Palantir’s fundamentals justify its price?

Third-quarter revenue rose 30% year over year to $726 million, while adjusted earnings before interest, taxes, depreciation and amortization jumped 39% to $283.6 million. dollars (this figure adds $142.4 million in 2014). stock-based compensation).

Even if these results are correct, they are not exceptional — and certainly not good enough to justify stock forward price/earnings ratio ratio of 158. For context, the S&P500 has an average forward PE estimate of 24, while AI industry leader Nvidia trades at just 30 times expected earnings, despite growing its revenue by 94% over its most recent quarter.

Palantir’s valuation is disconnected from its fundamentals. And Trump’s presidency likely won’t exploit the company’s growth potential as much as the market seems to believe. Investors should expect its shares to come back down to earth in 2025.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.