What Should Palantir Investors Worry About?

Core Insights - Palantir Technologies has experienced significant stock volatility, with declines exceeding 30% on three occasions in recent years, resulting in substantial market capitalization losses [2] - Despite a strong performance driven by AI platform adoption and commercial growth, the stock's high valuation raises concerns about sustainability, as it trades at ratios much higher than industry standards [3] - Historical performance indicates that Palantir's stock can face steep declines during market crises, such as a 22.5% drop during the COVID-19 pandemic and an 85% decline during inflation shocks [5] Financial Performance - Revenue growth for Palantir is reported at 47.2% for the last twelve months (LTM) and an average of 29.3% over the last three years [11] - The company has a free cash flow margin of nearly 46.0% and an operating margin of 21.8% for LTM [11] - The stock currently trades at a price-to-earnings (P/E) multiple of 395.9, indicating a high valuation risk [11] Risks and Challenges - Valuation risk is significant, with a forecasted stock drop of 17% in November 2025 due to high valuation metrics, although robust revenue growth of 63% in Q3 2025 and raised FY25 guidance of $4.398 billion provide some mitigation [10] - Rising competition from decreasing AI costs and expanding large language models (LLMs) may impact Palantir's growth, with analysts predicting a moderation to 35% year-over-year growth for 2026 [10] - Ethical and public relations issues related to government surveillance contracts pose reputational risks, although the company's focus on AI ethics and recent defense contracts may help mitigate these concerns [10]