Is Palantir Stock Overpriced? A Legal and Financial Perspective on Market Valuation
- Irion Dekov
- May 13
- 4 min read
Updated: Jun 11
Introduction
Palantir Technologies (NYSE: PLTR) is one of the world's leading companies in the hot data analytics sector. By using artificial intelligence to make analytics more efficient, it has caused a stir among investors. By receiving government grants combined with its commercial development, the company has managed to achieve a 340% growth in 2024 and a 45% profit since the beginning of 2025. Obviously, such big numbers raise questions about its valuation and regulatory risks. In this article, we will examine whether Palantir stock is overvalued through a dual lens: financial metrics and legal / compliance challenges.

Financial Valuation: Sky-High Multiples and Growth
In the first quarter of 2025, Palantir posted a huge financial performance, with its revenue increasing by 39% year-over-year. Due to a 71% increase in sales in the US, along with a 45% increase in government contracts, the company recorded revenue of approximately $884 million! However, its valuation ratios are questionable. It is worth noting that since May 2025, its earnings have far exceeded the industry average. This was obtained by calculating this equation: 185x forward earnings and 593x P/E ratio. In addition, the enterprise value to EBITDA multiplier of 839x further highlights concerns about overvaluation.
Analysts and data scientists point out that Palantir’s price-to-sales (P/S) ratio of 37.88 and market cap of $292 billion reflect extreme optimism about future growth. The company revised its 2025 revenue forecast to a new estimate of $43.9 billion. It’s likely that such growth won’t justify its multiples. Compared to other similar companies, it trades at significantly lower valuations, despite operating in high-growth sectors like cybersecurity, such as CrowdStrike. Playing the devil's advocate, Palantir's PEG ratio of 0.3 suggests the stock may still be undervalued relative to its earnings potential. However, to sustain such growth, flawless execution is required, minimizing the chance of error, say analysts at William Blair.
Legal and Regulatory Risks: A Hidden Drag on Valuation
Palantir’s business model is based primarily on government contracts and data analytics. However, it is often exposed to complex legal and regulatory risks. In its filing with the Securities and Exchange Commission (SEC), the company warns that global privacy laws such as the GDPR in Europe and the CCPA in California could impose costly compliance audits or lead to fines of up to 4% of global revenue for violations. Because its operations span multiple jurisdictions, Palantir faces a patchwork of evolving regulations, creating uncertainty for long-term planning.
For example, California’s Proposition, which was introduced in November 2025, aimed to tighten data retention and ad targeting rules. Compliance could require Palantir to modify its data-handling practices, potentially increasing its operating costs. Palantir CEO Alex Karp says the company is focused on defense and has tried to avoid monetizing data, unlike other multinationals like Google or Meta. Palantir remains subject to various scrutiny because it handles sensitive government data.
Furthermore, as we have mentioned above, Palantir depends on US government spending. This, on the one hand, generates large revenues for the company, but on the other hand introduces political risk. Shifts in administration priorities, such as defense budget cuts or procurement reforms, could disrupt contract flows.
Growth Drivers vs. Market Saturation
Palantir’s growth story is based on two pillars: AI adoption and commercial expansion. In 2023, AI began to act in its transitional first year of implementation, increasing commercial customers from 184 in 2022 to 571 by the end of 2024. Palantir followed a very smart and simple strategy, also known as a «boot camp» strategy. In more detail, the company’s engineers gave presentations to potential customers explaining AIP. With this recipe, Palantir secured high-value deals, including seven-figure contracts within months.
This is where the phrase «too good to be true» comes into play. This is where the bad news for the company begins. International commercial revenues declined year-over-year in the first quarter of 2025, and operating margins edged down slightly to 44%. While the US government continues to award generous contracts (e.g., a recent deal with NATO), growth in this sector may slow as defense budgets stabilize. Industry experts and analysts are warning of a multiple squeeze if revenue growth slows in late 2025. This could cause significant volatility and anxiety.
Analyst Sentiment: Bullish Dreams vs. Bearish Realities
Wall Street remains divided. Optimistic analysts such as Dan Ives of Wedbush, for example, estimate a market capitalization of $ 1 trillion in 2-3 years, citing Palantir's leadership in Artificial Intelligence. In addition, through their analyses they refer to the stock's performance of 391% in the last year as well as its dominance in defense technology. On the other hand, the more pessimistic ones argue that the stock is priced close to perfection. Palantir's revenue forecast for 2025 of $ 3.9 billion was lower than some optimistic expectations. This result led to an 8% drop after earnings. William Blair maintains the "Market Perform" rating, sounding the alarm that the valuation leaves little room for upside.

Conclusion
Palantir stock embodies the tension between disruptive growth and speculative excess. The contribution of AI (with all its tools) combined with government partnerships justify the premium pricing. Also, the current multiples assume flawless execution amid rising regulatory costs and market saturation risks. On the legal side, there are several challenges related to data protection, adding another layer of uncertainty. The main question that arises from the above and concerns investors is whether Palantir can grow its valuation. If the hypothetical AIP adoption rate accelerates and profit margins improve, then the stock could defy skeptics. However, a single mistake could be fatal and have a significant impact on either compliance, contract renewals or growth. In a market where "ravenous" AI demand meets fragile investor sentiment, Palantir remains a high-risk and simultaneously high-reward bet.
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