Can Palantir Stock be the Next NVIDIA, and Is It Worth Buying?

Rise in military contracts and expanding commercial clientele helped software maker Palantir Technologies Inc.’s PLTR shares scale upward this year. The company also raised its outlook on continued artificial intelligence (AI) demand, prompting speculation about its potential as the next Wall Street favorite like NVIDIA Corporation NVDA, and scope as a promising investment. Let’s explore –  

Palantir Reports Q1 Earnings, Shares Drop 

Palantir published financial results for the first quarter, with revenues coming in at $884 million, up 7% quarter over quarter and 39% year over year. It’s more than Wall Street’s estimated revenues of $862 million. In the U.S. commercial segment, revenues increased by 19% sequentially and 71% from the prior year. Revenues from the U.S. Government also surged, contributing to the impressive result. 

In the first quarter, Palantir’s customer count soared 39% from a year ago, driven by a 65% jump in U.S. commercial customers. Palantir also closed 139 deals valued at least $1 million. Palantir’s remaining performance obligation (RPO) was $1.9 billion, up 46% year over year. With RPO growing faster than revenues, the company has set the basis for future growth. 

The increasing popularity of Palantir’s Artificial Intelligence Platform (AIP), which can automate tasks beyond human capabilities, helped the AI poster child drive revenue growth. The company also expects 2025 revenues of $3.9 billion, up from the previous guidance of $3.75 billion.  

Before first-quarter earnings, Palantir’s shares rose by 65% for the year. However, yesterday, shares fell 9% after-hours, following the company’s earnings release. Palantir reported adjusted earnings per share of 13 cents, which beat last year’s 8 cents, but only matched Wall Street’s forecast. 

Palantir Headwinds: Sky-High Valuation, Spending Cuts, Tariffs 

Palantir’s first-quarter earnings results indicated that failing to exceed investor expectations could result in volatility due to the stock’s lofty valuation.  Its forward price-to-earnings (P/E) ratio of 224.2, way more than the Internet - Software industry’s 37.9%, sets a high bar for growth, increasing the risk of a stock downturn if outcomes aren’t satisfactory.  

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Palantir, anyhow, faces two major challenges that can derail its growth trajectory. More than half of Palantir’s revenues come from its engagement in the public sector, including the military. However, to cut costs, for the next five years, the Pentagon intends to trim its yearly budget by 8%. This may jeopardize Palantir’s growth. Secondly, President Trump’s tariffs could prompt potential clients to reduce software spending, impacting the company’s income.

Should I Invest in PLTR Stock Now? Could It be Next NVIDIA? 

Investors should approach Palantir stock with caution despite a growing customer base and AIP acceptance. Since the stock is expensive according to valuation measures, any long-term disappointment may lead to a decline in shares. Future software budget cuts and reductions in military spending do not bode well for Palantir. Therefore, it’s wise to avoid investing in the stock or consider a dollar-cost-averaging strategy if you have a high risk tolerance.  

Comparing Palantir with NVIDIA now would be premature. A steady rise in AI infrastructure spending, consistent demand for NVIDIA’s new-generation AI chips, and dominant position in the graphics processing units (GPUs) market space give NVIDIA an edge over AI rivals, including Palantir. Maybe that’s why brokers have raised NVIDIA’s average short-term price target by 45.1% to $166.10 from the previous $114.50.

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On the other hand, brokers have lowered Palantir’s average short-term price target by 32.4% to $84 from the previous $124.28. 

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For now, Palantir has a Zacks Rank #4 (Sell), whereas NVIDIA carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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