Is Palantir (PLTR) Stock a Buy Despite Its High Valuation?

In the ever-evolving landscape of artificial intelligence and defense technology, Palantir Technologies (PLTR) has emerged as a polarizing figure. With a trailing price-to-earnings (P/E) ratio of 422.61 and a forward P/E of 191.14 as of early 2026, the stock's valuation appears astronomically high by traditional metrics. Yet, for investors with a long-term horizon, the question remains: does Palantir's strategic positioning in AI and defense justify its premium price tag?

Strategic AI and Defense Growth: A Catalyst for Expansion

Palantir's transformation from a niche government contractor to a leading enterprise AI provider has been nothing short of revolutionary. The launch of its Artificial Intelligence Platform (AIP) in 2025 catalyzed a 145% surge in its stock price from April to September 2025, driven by rapid adoption across commercial and government sectors. For instance, U.S. commercial revenue in Q3 2025 grew 121% year-over-year to $397 million, while total revenue for the twelve months ending September 30, 2025, reached $3.896 billion-a 47.23% year-over-year increase.

This growth is underpinned by a $10 billion U.S. Army contract consolidating 75 separate agreements, as well as broader trends in defense modernization. The AI in aerospace and defense market, valued at $25.69 billion in 2024, is projected to grow to $29.27 billion by 2025 at a 14% CAGR, with North America accounting for 39.3% of global growth. Palantir's AIP is uniquely positioned to capitalize on this demand, offering data-driven decision-making tools that align with the sector's shift toward autonomous systems and predictive analytics.

Valuation Risks: A Double-Edged Sword

Despite its growth, Palantir's valuation metrics raise red flags. Its price-to-earnings-growth (PEG) ratio of 4.47 suggests investors are paying a steep premium for future earnings relative to its peers. For context, Northrop Grumman (NOC), a defense stalwart, trades at a forward P/E of 22.21, while Leidos (LDOS) is valued at 13.95X. Even the broader U.S. Aerospace & Defense industry, with a P/E of 45.8x, trades at a fraction of Palantir's multiple.

The disconnect between Palantir's valuation and its peers stems from its speculative growth profile. While RTX Corporation (RTX) and NOC are expected to see modest revenue growth (4.2% and 0.14% year-over-year in 2025, respectively), Palantir's 40.49% five-year revenue growth forecast demands a leap of faith. Analysts caution that if the company fails to meet these expectations-whether due to regulatory headwinds, slower AI adoption, or macroeconomic shifts-the stock could face a sharp correction.

Peer Comparison: Palantir's Unique Position

Palantir's high valuation is not entirely irrational when viewed through the lens of its peer group. The AI defense sector is expanding at a 22.4% CAGR, and Palantir's revenue growth (47.23% in 2025) far outpaces traditional defense contractors. For example, RTX's Q3 2025 revenue grew 12% year-over-year, while Northrop Grumman's Defense Systems segment saw a 3.91% annual increase in its latest quarter.

However, Palantir's reliance on AI-driven innovation introduces volatility. Unlike RTX or NOC, which derive stable revenue from long-term defense contracts, Palantir's success hinges on the scalability of AIP in commercial markets. While U.S. commercial revenue surged 121% in Q3 2025, this segment remains small relative to its government contracts. A slowdown in enterprise AI adoption could disproportionately impact its growth trajectory.

Conclusion: A High-Risk, High-Reward Proposition

Palantir's stock is a double-edged sword for investors. On one hand, its AI platforms and strategic defense contracts position it to benefit from a $47.02 billion AI defense market by 2029. On the other, its valuation metrics-particularly the P/E and PEG ratios-reflect a company trading at a premium to both fundamentals and peers.

For risk-tolerant investors, Palantir's growth potential could justify the high valuation, especially if AIP continues to gain traction in commercial markets. However, those seeking more conservative exposure to the defense sector might prefer RTX or NOC, which offer lower multiples and steadier revenue streams. Ultimately, Palantir is a speculative bet on the future of AI-driven defense and enterprise analytics-a bet that could pay off handsomely if the company executes its vision, but one that demands careful scrutiny of its execution risks.