Palantir Stock Drops 17% From Its High. Wall Street Has Best- and Worst-Case Scenarios for What Happens Next.

Palantir Technologies (NASDAQ: PLTR) stock has advanced 1,880% since the introduction of ChatGPT in late 2022, an event that jump-started the artificial intelligence (AI) boom. But the stock has also fallen 17% from its high because of valuation concerns and a recent rotation away from software stocks.

Bulls argue the company provides indispensable analytics and artificial intelligence tools that help commercial enterprises and government agencies make data-driven decisions. Bears argue shares trade at an absurdly expensive valuation because hype (rather than strong fundamentals) has been the primary catalyst for price appreciation.

Palantir currently trades at $170 per share, and analysts' share price forecasts range from $50 to $255. That implies 70% downside at the bearish extreme and 50% upside at the bullish extreme. However, the median target price of $200 per share suggests the stock will advance 17% in the next year.

Image source: Getty Images

Wall Street bulls argue Palantir is a leader in artificial intelligence

The bull case for Palantir centers on its ability to help clients across the public and private sectors build and deploy artificial intelligence (AI) solutions that improve decision-making. Forrester Research recently ranked the company as a leader in AI decisioning platforms, and the International Data Corp. has also recognized its leadership in AI driven source-to-pay platforms, which focus on optimizing procurement and supply chain management.

Janice Quek at CFRA Research was impressed with Palantir's third-quarter financial report. Revenue increased 62% to $1.1 billion, the ninth consecutive acceleration, driven by strong sales growth in its commercial and government businesses. Quek said Palantir achieved a Rule of 40 score of 114% in the third quarter, which is "unprecedented for a software company."

Dan Ives at Wedbush Securities selected Palantir as one of his top picks for 2026, calling its software the gold standard in AI use cases. "With the company making strategic moves to remain at the forefront of AI, we believe that PLTR has a golden path to become a trillion-dollar market cap company and will grow into its valuation," Ives wrote in a note to clients.

Mariana Perez Mora at Bank of America in a recent note wrote, "We continue to see PLTR unmatched in their ability to rapidly achieve in-production solutions and provide human-machine teams with the ability to make the most informed decisions." That aligns with commentary from Palantir executive Ryan Taylor. "Our unique capability lies in moving from prototype to production."

Sanjit Singh at Morgan Stanley in a recent note praised Palantir for its latest financial results and positioning itself as the enterprise AI standard. "Palantir is not only delivering the best growth in public company software but also the best profitability in all of software," he wrote. "It is hard to find a better fundamental story in software."

Wall Street bears argue Palantir stock is wildly overvalued

The bear case for Palantir centers on valuation. The stock trades at 105 times sales, which is 10 times higher than the software industry average and three times higher than the next most expensive stock in the S&P 500. Even more concerning, among the 100 largest U.S. software stocks, only seven others ever achieved a price-to-sales ratio above 100, and they all dropped at least 67% after their valuations peaked.

In November, Mark Giarelli at Morningstar said Palantir's price-to-sales ratio represented a 350% premium to other artificial intelligence companies. He also expressed concern about the poor risk-reward profile, saying the company's revenue would need to increase at 45% annually for the next five years to justify buying the stock today.

Rishi Jaluria at RBC Capital has consistently been the most bearish analyst on Wall Street where Palantir is concerned. He believes the addressable market is limited to large and complex companies because of its focus on building bespoke solutions that require heavy consultation. Jaluria thinks commercial revenue will grow at 15% annually over the long run (down from 73% in the third quarter), which makes the current valuation unsustainable.

Michael Burry, the fund manager famous for predicting the collapse of the housing market ahead of the 2008 financial crisis, disclosed a sizable bet against Palantir during the third quarter. Two-thirds of his $1.4 billion portfolio was invested in Palantir put options, contracts that make money if the stock declines. He argues the company's software is not unique and the stock is too expensive.

Here's the big picture: Palantir has consistently delivered strong financial results in recent years, and investors have good reason to think that will continue. The AI platform market is forecast to expand at 38% annually through 2033, according to Grand View Research. Even so, Palantir's valuation is difficult (perhaps impossible) to justify and history suggests a big drawdown is coming. I think investors should keep any positions in this stock very small.

Bank of America is an advertising partner of Motley Fool Money. Trevor Jennewine has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.