Palantir just released their Q3 earnings report, and according to CEO Alex Karp, “It is arguably the best result that any software company has ever delivered.” Revenue jumped 63% to $1.18 billion, net income surged to $475.6 million, and earnings per share beat estimates of 17 cents to reach 21 cents.Â
The company also raised its full year guidance for the third time in 2025, now forecasting $4.4 billion in revenue, and projected fourth quarter sales between $1.327 billion and $1.331 billion which is well above the $1.19 billion consensus estimate. On paper, Palantir appears to be executing flawlessly with AI.
Yet, beneath these headline numbers lie a troubling reality. The company’s extraordinary valuations and the speculations surrounding it suggest that much of this growth may prove short lived, unsustainable, and ultimately destructive to shareholder wealth.
The numbers definitely look great and no serious investor can dismiss Palantir’s operational performance. The U.S. commercial revenue more than doubled to $397 million, a 121% surge. Government sales grew 52% to $486 million. The company’s U.S. commercial customer total contract value even quadrupled to $1.31 billion.
These are obviously impressive metrics that reflect real demand for the company’s AI platforms and data analytics services. CEO Alex Karp noted that 139 deals of at least $1 million closed in the quarter, showing their widespread adoption across multiple sectors.
However, the stock’s valuation tells a very different story. Palantir trades at a 12-month forward price-to-earnings ratio of 246.2. Nvidia, widely celebrated as a primary beneficiary of the AI boom, trades at a comparatively reasonable 33.3. The stock has surged more than 170% this year, more than doubling Nvidia’s gains and vastly outpacing the S&P 500.
At a market cap exceeding $490 billion, Palantir trades at approximately 120x Price-to-Sales multiple, a level that would be considered completely unjustifiable in any rational market. These valuations are not grounded in financial reality, they are grounded in sentiment, momentum, and what amounts to the fear of missing out.
A Valid AI Bubble
The AI market today has become a massive spending spree with companies throwing billions at AI initiatives with little regard for actual ROI or sustainable business models. Wall Street analysts themselves acknowledge growing concerns about an “AI bubble,” yet many continue to recommend technology stocks at historic valuations.
Blake Anderson, associate portfolio manager at Carson Group, explicitly stated that Palantir’s revenue growth deceleration from 63% to 61% represents “a cause of concern given the stock’s lofty valuation.”
CEO Karp’s own acknowledgment in a CNBC interview that “there’s excess in the AI market today and that some companies are eventually going to feel the pain” further supports this. He suggested that “the strong companies are going to get much stronger, and the people pretending they’re doing stuff are going to disappear very quickly.”
While Karp was defending Palantir as one of the “strong companies,” his admission confirms what many investors already sense. The current market is separating legitimate operators from speculators, but the sorting process will be painful.
A very critical question that remains for most investors is that of sustainability. Palantir’s government business, which accounts for a significant portion of revenue, is currently kept afloat by expectations of increased defense spending and a Pentagon policy shift toward commercial software providers.
However, geopolitical relationships shift, administrations change, and government spending priorities evolve. While the recent $10 billion Army contract and the U.S. Army’s directive requiring all organizations to use Palantir’s Vantage platform provides short-term boosts; these gains are not assured indefinitely.
The commercial side still represents a smaller portion of overall revenue. Customer acquisition through boot camps and rapid AI deployments may be inflating the near-term sales figures, but there remains genuine uncertainty.
Will those customers stick around and renew their contracts, or expand their usage enough to justify the extremely high valuations. A 246 P/E ratio assumes not just continued growth, but continued acceleration that defies business maturity and market saturation.
The Retail Phenomenon
Much of Palantir’s stock surge has been driven by retail investors rather than institutional wisdom. Karp himself noted in a shareholder letter that “Palantir has made it possible for retail investors to achieve rates of return previously limited to the most successful venture capitalists in Palo Alto.”
While the way he framed this sounds empowering, it actually describes a dangerous dynamic. Retail investors are chasing spectacular returns in a name with fundamental valuations that no serious institutional framework can justify.
When these investors eventually realize that a stock trading at 246x earnings cannot sustain that multiple indefinitely, the reversal could be catastrophic. History shows that sentiment-driven rallies in technology stocks tend to end not with gentle corrections but with severe drawdowns.
For example, between 1995 and 2000, technology stock valuations surged dramatically with the rise of dot com companies. The Nasdaq index, which is heavily tech-focused, increased over 600%, reaching its peak on March 10, 2000. However, the bubble soon burst, and by October 2002, the Nasdaq had plunged approximately 78%, wiping out nearly all gains gained during the boom.
This crash led to the collapse of many companies that were highly overvalued without sustainable business models, including Pets.com, Webvan, and Boo.com, causing massive losses across the sector. Even established tech giants like Cisco Systems, Intel, and Oracle saw their stock values fall over 80%.
The real test facing Palantir is not whether it can continue growing revenue at 60%+ rates for the next quarter or two. The test is whether the company can justify a $490 billion market cap on the basis of fundamentals rather than narrative. Even if Palantir executes perfectly and reaches $10 billion in annual revenue within five years, a realistic 12x forward revenue multiple would place its market cap at approximately $120 billion, less than one-quarter of today’s valuation.
This implies that a significant portion of Palantir’s current stock price reflects not today’s business or even tomorrow’s, it reflects an assumption of virtually unlimited future growth that no company can deliver indefinitely.
Palantir is definitely executing well. The AI adoption is real, the government contracts are genuine, and the company’s technology appears valuable and differentiated. The problem is not the business, the problem is the price. When a company trading at 246x forward earnings beats quarterly estimates, stock prices typically rise for a day or two before reality reasserts itself.
The AI bubble that CEO Karp himself acknowledges will eventually burst, and when it does, companies with historically extreme valuations will suffer the most.
