Palantir's 144% Rally: Is the AI Data Play Overvalued?

In 2025, Palantir Technologies (PLTR) has surged 144% year-to-date, fueled by its AI-driven commercial expansion and a $10 billion U.S. Army contract. Yet, as the stock trades at a price-to-sales (P/S) ratio of 119.47 and an enterprise value-to-revenue (EV/Revenue) ratio of 124.20, skepticism is mounting. Andrew Left of Citron Research, a seasoned short-seller with a track record of targeting overhyped tech stocks, has declared Palantir “beyond overvalued,” arguing that even a 35x sales multiple would require a 66% correction. This article examines whether the AI data play has become a speculative bubble or a justified bet on the future of enterprise software.

The Bear Case: Andrew Left's Calculated Bet

Andrew Left's bearish thesis hinges on Palantir's valuation disconnect. At a trailing P/E of 532.54 and a forward P/E of 227.82, the stock trades at multiples far exceeding those of AI peers like Nvidia (35x) and even high-growth SaaS giants like CrowdStrike (934x EV/EBITDA). Left argues that Palantir's commercial success—$1.004 billion in Q2 revenue and 48% year-over-year growth—does not justify a valuation 10x higher than SAP's (P/S of 29x). He warns that even if Palantir were the “greatest company ever created,” a 35x sales multiple would imply a $65–$70 price target, a 60% drop from current levels.

Left's short position is part of a broader strategy to balance high-risk tech bets with undervalued blue-chips like Amazon and Apple. His critique is not about Palantir's business model—Left praises CEO Alex Karp as a “feared leader”—but about the market's willingness to ignore fundamentals. “This is a retail-driven narrative,” he told Fox Business, “not a value-driven investment.”

Valuation Metrics: A Tale of Two Giants

Palantir's valuation metrics are stratospheric. Its P/S ratio of 119.47 dwarfs even the most aggressive AI startups. For context, Databricks—a private company valued at $62 billion—has a P/S of just 16.76x, based on its $3.7 billion annualized revenue run rate. SAP, a mature enterprise software giant, trades at a P/S of 5x. Palantir's EV/Revenue of 124.20 is also far above the SaaS industry median of 2.58, suggesting the market is pricing in decades of growth into a single stock.

The disparity is even starker when comparing free cash flow. Palantir generated $569 million in Q2 adjusted free cash flow, but its EV/Free Cash Flow ratio exceeds 700x, a level rarely seen outside of pre-bubble tech stocks. In contrast, Databricks, while unprofitable, is on track to achieve free cash flow positivity in Q4 2025, with a path to profitability that appears more grounded in operational efficiency than speculative hype.

Growth Sustainability: Can Palantir Keep Scaling?

Palantir's Rule of 40 score of 83% (39% revenue growth + 44% adjusted operating margin) is impressive, but analysts like Gil Luria of DA Davidson argue it's insufficient to justify the valuation. Luria calculates that Palantir would need to grow at 50% annually for five years while maintaining a 50% operating margin to bring its forward P/E down to 30x—a level in line with Microsoft or AMD. Current projections, however, show growth slowing to 31% in 2026 and 33% in 2027, far below the 50% threshold.

Moreover, Palantir faces intensifying competition. Databricks, with its $3.7 billion revenue run rate and 50% year-over-year growth, is rapidly gaining traction in the AI and data lakehouse space. Microsoft and Amazon are also expanding their AI platforms, offering alternatives to Palantir's Foundry and Gotham systems. Regulatory risks loom as well, with the EU's AI Act and U.S. antitrust scrutiny threatening to disrupt Palantir's government contracts, which account for 46% of its revenue.

Skepticism from the Street: A Consensus of Caution

Top market skeptics echo Left's concerns. Brent Thill of Jefferies notes that Palantir's valuation is “disconnected from even optimistic growth scenarios,” requiring a 55% CAGR over four years to justify a 25x 2028 revenue multiple. Mark Giarelli of Morningstar calls the stock “eye-wateringly expensive,” warning of a “gravity-driven selloff” if growth stumbles. Gregg Moskowitz of Mizuho acknowledges Palantir's uniqueness but cautions that a “material multiple reversion” is likely in the next few quarters.

Even bullish analysts like Que Nguyen of Research Affiliates admit the risks. While Nguyen sees potential for Palantir to become a trillion-dollar company, he emphasizes that the stock's success depends on “sustaining high growth indefinitely”—a near-impossible feat for any company.

Investment Implications: A High-Risk, High-Reward Proposition

For investors, Palantir presents a classic dilemma: a high-growth story with a valuation that assumes perpetual dominance in AI and government contracts. The stock's 144% rally in 2025 reflects optimism about its Foundry platform and AI partnerships, but the metrics suggest a fragile equilibrium. A single earnings miss or regulatory setback could trigger a sharp repricing.

Short-term traders may find value in hedging with a short position, particularly if Palantir's valuation multiples begin to normalize. Long-term investors should consider the company's ability to maintain its Rule of 40 while navigating competitive and regulatory headwinds. Given the current valuation, however, patience is key. As Andrew Left aptly put it, “This isn't a buy-the-dip story—it's a sell-the-peak one.”

In conclusion, Palantir's AI-driven growth is real, but its valuation is a house of cards. For every $100 invested in PLTR, $90 is betting on a future that may never materialize. In a market where hype often outpaces fundamentals, Palantir's rally is a reminder that even the most innovative companies can become overvalued—and that the road to $200 per share may be paved with corrections.