Palantir is at dot-com levels of overvaluationTl;dr, Palantir is grossly overpriced against the general market, as well as against its own financial metrics from 4 years ago, and its valuation metrics put it in peak dot-com bubble territory.
Metrics
Palantir's current price puts it at a market cap of $467.35B. With expected $3.5B in annual revenues in 2025, the price/sales (PS) ratio is at ~147 . PS ratios are the financial metric to watch for growth stocks, since growth companies prioritize revenue growth.
A high PS ratio should mean that the market expects high revenue growth. While Palantir's revenue growth is pretty high, it's not as exceptional as the PS ratio would imply. It seems that the market is not only extrapolating the revenues to continue rising, but it's also extrapolating that the growth itself (or first derivative of revenues) is going to keep increasing for years sequentially. Palantir has to generate far higher annual growth than it currently has to come close to justifying this valuation, I'd expect at least 175% annually.
For reference, Nvidia traded at a PS ratio of 43 in mid 2023, and then generated 125% growth 2 years in a row. The PS ratio stayed relatively stable since then, and never went past 43. Important thing to note here is that Nvidia also has higher net profit margins than Palantir, and profit margins play a role in how PS is interpreted (since earnings is what really matters). Palantir's profit margins have been growing consistently, from 10% -> 16% -> 32% annually, but still not close to Nvidia's 50%. Further profit margin growth would help to justify the overvaluation.
Comparisons
As the chart shows, Palantir's annualized revenue growth last quarter is equivalent to its growth in 2021 at ~50%. Revenues since then increased by 170%. Palantir at the time traded at a PS of 37, which is pretty high for 50% growth, but not too crazy.
If the stock traded at the same PS ratio as in 2021, where its growth was the same, the stock would be trading at ~$53 today at a market cap of $120B.
A PS ratio of >100 implies extreme bubble levels. From what I've found, during the very peak of the dot-com bubble:
Yahoo! traded at PS 100
Amazon traded at ~50
Ask Jeeves traded at ~55
CMGI traded at >300
Internet Capital Group traded at >200
Webvan traded at ~150
With Palantir trading at a PS of 147, it's well within the peak dot-com levels of overvaluation. While the entire tech/AI market is currently at very high valuations, Palantir still towers far above them.
Some examples of other high growth stocks today:
Crowdstrike at PS 30
AppLovin at PS 41
ServiceNow at PS 16
Netflix at PS 11
Even with the stock screener I couldn't find a stock that came close to trading Palantir's PS ratio, except for Microstrategy (which has no revenues as a crypto holding company) and for moonshot pharma R&D stocks which also have little to no sales by design.
The point of this idea is to show how grossly and absurdly overpriced this stock is, but it's not a recommendation to take a short position. The stock is so far decoupled from reality that you should consider it as equivalent to a meme coin. The financials don't matter, and it's simply an asset with a limited supply that is in high demand, so the price keeps going up.
