Is Palantir Technologies the Ultimate Stock to Avoid Tariff Fears?

Tariffs usually target physical goods, not products like software. This makes software companies like Palantir Technologies (NASDAQ: PLTR) a potential safe haven for investors. However, if corporate profits fall at other companies, they may be less likely to spend on enterprise software, which could harm Palantir's demand.

But considering how popular its software has become among companies looking to deploy an AI-driven data analytics platform, the company may still see strong demand. So, is it the ultimate stock to avoid tariff fears?

Palantir will likely feel almost no disruption in its business

Since the market sell-off began in mid-February, the stock has declined around 40% from its all-time high, but currently only sits a bit more than 10% down from that high. That's a pretty clear indication from the broader market that Palantir could be an excellent investment as concerns about how tariffs will affect the economy ramp up.

Another factor encouraging investors about the company's results is that governments worldwide are heavy users of its software. In fourth quarter, $455 million of its $828 million in revenue was from government sources, which is a healthy split between commercial and government businesses.

Having the government as a client is key in the face of an economic downturn, because it doesn't tend to cut spending like commercial clients might. Still, some investors may worry about the effect of the federal government efficiency initiative on any potential spending.

This initiative will likely not affect Palantir's government business because the company's primary purpose is to use AI to make data-driven decisions. This platform isn't likely to see cuts, since it encourages the very thing this initiative was set up to do: Make the government more efficient.

With all that in mind, it could be the ultimate stock to own in an environment like this, especially considering that Wall Street analysts expect the company to grow its revenue by 31% this year.

But there's just one problem.

It's almost impossible to justify Palantir's valuation

There's no way around it: The stock is unbelievably expensive.

PLTR PE Ratio (Forward) data by YCharts; PE = price to earnings, PS = price to sales.

At 194 times forward earnings and 92 times sales, those are valuation levels that few companies ever reach, for good reason: It's nearly impossible to live up to the expectations that these valuations convey.

Normally, these valuations are reserved for the rare company that's doubling or tripling its revenue year over year, but Palantir's growth is only in the mid-30% range. For reference, a company like Nvidia, whose best year-over-year revenue growth was 265% in 2024, never traded for more than 46 times sales or 50 times forward earnings.

This is an absurd price to pay for the stock, and it clearly indicates that it is substantially overvalued. It's almost impossible to justify this price tag.

Instead of the 32% that Wall Street thinks it can grow revenue by for 2025, let's increase that rate to 35%. And instead of just one year, let's stretch that growth rate out for seven years. We'll also ignore the effects of stock-based compensation (a bad idea for Palantir) and give the company an industry-leading profit margin of 30%.

If all three of those projections come true, the stock would trade at 11 times sales and 36 times earnings, a more typical valuation for a company like Palantir when it's fully mature. That's seven years of growth already baked into the stock price, and that's even with a bullish outlook.

There is far too much success priced into the stock right now, and it will be impossible to live up to the expectations that the market has for it. As a result, Palantir Technologies doesn't look like as much of a safe haven anymore, and investors should find alternative places to put their money.

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Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.