• Palantir stock suffers from severe overvaluation.

• Can this challenge be resolved over the long term?

From its launch in late 2020 to March 24, 2025, Palantir Technologies stock has returned an impressive 952%. That means that if you invested $10,000 at its IPO, you would now have a whopping $105,200. This example highlights the life-changing potential of stock market investing and the importance of having a long-term perspective.

That said, Palantir's past performance doesn't guarantee its future performance -- especially as challenges like government downsizing and possible overvaluation chip away at its growth thesis. Let's dig deeper to find out what the next half decade could have in store for the company.

Palantir's growth isn't as impressive as you might think

While Palantir's stock performance makes it look like an unstoppable technology monster, the reality is a little more complicated. While the company posts respectable growth, it isn't fantastic. Palantir's fourth-quarter sales jumped 36% year over year, driven by the rising adoption of its AI data analytic tools by the government and commercial clients, while its net income fell 21% year over year to $76.9 million.

To put this performance in context, Nvidia (another top-performing AI stock) saw its fourth-quarter sales jump by 78% year over year to $39.3 billion, while net income soared by 80% to $22.1 billion. The chipmaker enjoys a significantly higher growth rate than Palantir, even though both equities have similar performance. The difference is valuation.

PLTR data by YCharts

While Nvidia stock trades for a relatively modest price-to-earnings (P/E) of 40, Palantir trades for a whopping 460 times its earnings over the trailing 12 months, making it likely one of the most overvalued companies available. Unfortunately, there is very little to justify this dynamic.

Trump-related hype looks overblown

Stocks can attract premium valuations when the market expects their growth to accelerate in the future. And Palantir's recent rally can be linked to optimism surrounding Donald Trump's election victory. The company's co-founder, Peter Thiel, is an outspoken supporter of the president and Vice President, JD Vance, who worked for him at Mithril Capital.

However, investors should approach politics with caution. While Palantir is a government contractor, having friends in high places might not actually create shareholder value. According to CEO Alex Karp, Thiel's outspoken political involvement made it harder for Palantir to get things done during the first Trump administration. The company faced employee backlash over its work with Immigration and Customs Enforcement $(ICE)$.

Image source: Getty Images.

Other examples, like Tesla, Disney, and Anheuser-Busch, highlight the brand risk that can occur when corporations appear to take sides in controversial and politically partisan issues.

Furthermore, Trump's policies may not actually benefit Palantir's business. The new administration (with help from the Department of Government Efficiency) has worked to downsize the public sector. Most notably, the Pentagon plans to slash its budget by 8% over the next five years in a move that could jeopardize a significant source of Palantir's sales.

Where will Palantir stock be in five years?

Palantir's current valuation seems to price in a dramatic increase in top and bottom-line growth. And it's hard to see this happening. The U.S. government is downsizing, and the company faces competition in the private sector from similar rivals like Snowflake and Microsoft Fabric. Its founder's political affiliations could introduce even more risk.

With all this in mind, Palantir's stock is unlikely to replicate the incredible returns it enjoyed over the previous five years. And investors should stay far away until its inflated price tag comes back down to earth.