Palantir Technologies (NASDAQ: PLTR) just had an incredible year. The company was not only added to the S&P 500 (SNPINDEX: ^GSPC) in 2024, but its 345% return made it the index's best-performing stock. That upside was driven by excitement about Palantir's artificial intelligence platform, which has positioned the company at the center of a fast-growing market.
Importantly, history says Palantir could ride its momentum to strong returns in 2025, but most Wall Street analysts see substantial downside in the stock. Here are the important details.
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History says Palantir shares could soar in 2025
Shown in the chart are the best-performing S&P 500 stocks from each year of the past decade. The chart also shows the returns each stock generated in the next calendar year, illustrating the idea that the index's top performer tends to maintain its momentum.
|
Year |
Company |
Return During Listed Year |
Return During the Next Year |
|---|---|---|---|
|
2014 |
Southwest Airlines |
125% |
2% |
|
2015 |
Netflix |
134% |
8% |
|
2016 |
Nvidia |
224% |
81% |
|
2017 |
NRG Energy |
132% |
39% |
|
2018 |
AMD |
80% |
148% |
|
2019 |
AMD |
148% |
100% |
|
2020 |
Tesla |
743% |
50% |
|
2021 |
Devon Energy |
179% |
40% |
|
2022 |
Occidental Petroleum |
117% |
(5%) |
|
2023 |
Nvidia |
239% |
178% |
|
Average |
64% |
Data source: The Wall Street Journal, CNBC, YCharts.
As shown, the top S&P 500 stock in each year of the past decade returned an average of 64% during the next calendar year. Additionally, only one time did the best stock in the index decline in the subsequent year.
If we apply that information to Palantir, it puts the probability of a positive return in 2025 at 90%. It also suggests the likeliest outcome is 64% upside, which would carry Palantir stock above $125 per share.
Of course, past performance is never a guarantee of future returns. How Palantir stock performs in 2025 will depend on the company's financial results and investor sentiment, which at some point will be influenced by valuation.
Palantir is a leader in artificial intelligence software, but the stock is richly valued
Palantir specializes in data analytics software. Its core products, Foundry and Gotham, enable businesses to integrate and make sense of complex information. The company also sells an artificial intelligence platform, AIP, that adds support for large language models to its core products, which lets users engage Foundry and Gotham with natural language.
Forrester Research recently recognized Palantir as a leader in artificial intelligence and machine learning platforms, awarding AIP higher scores than similar tools from Alphabet-subsidiary Google. "Palantir is quietly becoming one of the largest players in this market," analysts commented. That's encouraging, because International Data Corporation estimates spending on AI platforms will increase at 40% annually through 2028.
Palantir reported strong financial results in the third quarter, beating estimates on the top and bottom lines. Revenue increased 30% to $725 million, the fifth straight acceleration, and non-GAAP (generally accepted accounting principles) earnings rose 43% to $0.10 per diluted share. Particularly encouraging was the 40% sales growth among U.S. government clients, an area of the business that had been struggling. Management attributed its strong performance to demand for AIP.
In short, Palantir has secured a strong presence in the AI platforms market, and spending in that market is projected to grow rapidly in the coming years. Unfortunately, the stock price has become disconnected from business fundamentals. Wall Street estimates Palantir's adjusted earnings will grow at 27% annually through 2025. That makes the current valuation of 225 times adjusted earnings look absurd.
Not surprisingly, Wall Street is overwhelming bearish on Palantir. In fact, only six S&P 500 companies have a higher percentage of sell ratings, and Palantir's median 12-month target price of $39 per share implies nearly 50% downside from its current share price of $77. To that end, I think investors should look elsewhere for opportunities in 2025.
Unless Wall Street is dramatically underestimating the company's future earnings, Palantir shares are likely headed for a sharp correction at some point in the future. At that point, prospective investors can reassess the situation and make a fresh decision.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Nvidia, Palantir Technologies, and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Netflix, Nvidia, Palantir Technologies, and Tesla. The Motley Fool recommends Occidental Petroleum and Southwest Airlines. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
