Is the party finally over for the shares of Palantir Technologies (PLTR 2.84%)? It took just over two years for the stock to rise from the $6 per share range to the all-time closing high of $124.62 per share. Still, within less than a month, it has surrendered 32% of its value.

Admittedly, most of the run-up occurred over the previous four months, which may add to the uncertainty about its price. Hence, the question for investors is whether the 32% decline is a natural pullback after a rapid increase, or is it just the beginning of a longer-term decline to come.

Palantir's changing business

Before Palantir launched its IPO in 2020, its AI-driven analysis technology earned credit for helping U.S. intelligence agencies find Osama bin Laden. Also, noting the relatively limited client base on the government side of the business with its Gotham platform, the company created the Foundry platform to bring this technology to commercial customers.

However, the platform that has become most game-changing for Palantir is its Artificial Intelligence Platform, better known as AIP. Organizations credited this generative AI platform with delivering massive productivity gains.

In its fourth-quarter 2024 earnings call, Palantir cited an insurance organization that applied AIP to automate underwriting workflows. It took what was a two-week process and completed the work in three hours. The company also told the story of a telecom company that used AIP to help decommission aging technology and equipment more rapidly.

Effects on the company's numbers

Such stories likely helped fuel the aforementioned run-up in its stock price. Nonetheless, investors should question whether the company's financial performance justifies the massive increase.

In 2024, revenue of almost $2.9 billion rose 29% compared to 2023. Moreover, revenue rising by 36% yearly in Q4 points to increasing growth rates. Plus, U.S. revenue grew 38% annually in 2024, which could bode especially well for Palantir since the U.S. accounted for about two-thirds of overall revenue.

Additionally, net income in 2024 totaled $462 million, up by 120% year over year, which could arguably help it justify a higher valuation.

Still, investors may feel increasingly uncomfortable about the stock's valuation. They may overlook the P/E ratio of around 450 since the company only turned profitable on a yearly basis in 2023. However, the forward P/E ratio of approximately 150 makes it likely the stock price is far ahead of company fundamentals. Investors may also struggle to justify a price-to-sales (P/S) ratio of over 70, especially since that valuation comes after the 32% pullback.

Furthermore, growth is likely on track to slow, according to the company itself. In 2025, Palantir forecasts revenue of $3.75 billion at the midpoint, which would amount to a 32% increase from 2024 levels. Most investors would objectively perceive that as a rapid growth rate. Nonetheless, investors often punish stocks for slowing growth, which could hurt Palantir's shares in the near term.

Is it time to buy the dip in Palantir stock?

Given the productivity gains that companies have made using its AIP platform, Palantir's business should continue to grow rapidly for the foreseeable future.

Still, the stock price has likely risen far ahead of its current and future growth, which could lead to lower (or possibly negative) returns for the stock's recent investors in the short and medium term.

For now, investors should keep the stock on a watchlist. If valuations fall to more reasonable levels, it will may be worth considering, but at these levels, it is more likely to continue falling before fomenting a sustained recovery.