• Palantir stock has been on a tear and shows no signs of slowing.

• The Teacher Retirement System of Texas has taken a stake in Palantir, albeit a relatively small one.

• Palantir has a bright future ahead, but its valuation has gotten away from it.

Palantir Technologies stock continued to run higher, the stock closed up 4.6% on Tuesday. The catalyst that sent the artificial intelligence (AI) software and data mining specialist higher was word that one of the country's largest retirement systems is bullish on the stock.

The Lone Star State

In a regulatory filing that dropped late last week, it was revealed that the Teacher Retirement System of Texas, one of the largest pension funds in the country in terms of fund size, had added Palantir to its portfolio during the fourth quarter. To be clear, it was a modest investment of roughly 521,000 shares, a stake currently worth about $62 million. That pales in comparison to the fund's total holdings of $210 billion as of late last year.

While that certainly won't be enough to move the needle, it acted more as confirmation for investors that -- despite its high valuation -- an increasing number of professional investors and fund managers are adding Palantir to their portfolios.

In fact, recent data released by Nasdaq estimates that institutional ownership of Palantir has risen to more than 52%, amounting to nearly 2.2 billion shares. Furthermore, nearly 1,300 professional money managers increased their Palantir holdings, while roughly 650 decreased their positions.

The excitement surrounding Palantir has been palpable, which has driven the stock up more than 400% over the past year (as of this writing). Unfortunately, there's been a commensurate increase in its already frothy valuation. The stock is currently selling for 225 times next year's expected earnings, which doesn't give the company much margin for error. Any failure to live up to the market's lofty expectations could bring the stock crashing down.

To be clear, I'm a Palantir bull, but I'm also a realist. I find it hard to reconcile the company's current valuation with its expected growth over the next few years.

Let the buyer beware.