Palantir Gets a Buy Call Despite Valuation. The Stock Is a ‘Secular Winner.’

Palantir Technologies trades at a forward price/earnings ratio of more than 232 times. (David Paul Morris/Bloomberg)

For all the talk about the lofty valuation of Palantir stock, backers of the artificial-intelligence heavyweight aren’t backing down. In fact, they got reinforcements on Friday.

Piper Sandler analyst Brent Bracelin initiated coverage of the stock, rating it at Overweight with a price target of $170. The shares rose 2.5% to $158.80 in afternoon trading, while the S&P 500 and tech-heavy Nasdaq Composite were each up 0.4%.

Piper Sandler has monitored the stock since before its direct listing in 2020, through late 2022, when it plummeted to $6, and into 2025, “where PLTR has been crowned an AI All-Star on accelerating growth,” Bracelin wrote.

He sees Palantir as a “secular winner in the AI revolution,” saying multiple factors will usher in growth of more than 30%, with free cash flow margins of above 40%. Government contracts are part of that.

The analyst expects the company to deepen its ties to the Army and Department of Defense, gaining from shifts in military spending that will benefit AI software providers. Closer connections with Fannie Mae are also likely, he said.

While Palantir is most often linked to the U.S. government, its commercial division has grown. Bracelin believes U.S. commercial revenue could expand at a 33% compound annual growth rate to $5 billion by the end of calendar 2030, both as more companies use the company and as a result of new partnerships with Accenture, Databricks, and SAP.

Bracelin noted that visitor traffic to the company’s website surged 144% in the second quarter, up from 62% last year. That reinforces Palantir’s status as an industry leader, akin to Anthropic, ChatGPT, and CoreWeave, all of which have seen comparable growth, Bracelin wrote.

All that hasn’t gone unnoticed; the share price has more than doubled this year. Anyone who wants to invest in the company will have to pay up. As of Thursday, Palantir stock was selling for more than 232 times the earning per share expected for the next 12 months, compared with a bit more than 22 times for the S&P 500 index.

One reason is that the AI boom has sparked extraordinary interest in Palantir. A Reddit community dedicated to discussing the company has 106,000 members. Many investors reason that Palantir will keep rising as businesses and governments continue to pour money into AI.

Bracelin’s view is that the valuation, at present, is unsustainably high. Palantir’s valuation premium “leaves little margin for error, particularly if any waning signs of moderating growth emerges,” he wrote.

Still, he believes the stock is worth buying, suggesting investors load up on it when the price falls. He cited 12 times shares have slid by 20% to 29% in the past five years.

Not everyone on the Street is so upbeat. The majority of 29 analysts tracked by FactSet who cover the stock are on the fence. Just eight rate Palantir at Buy or the equivalent, while 17 rate it at Hold. Four have it at Sell.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com