Will Palantir Stock Keep Surging After Expanding Government Contracts?

Capitalizing on its focus on the intelligence communities, data analytics, and artificial intelligence software provider Palantir PLTR saw its stock surge as much as +9% on Friday.

The surge came as news rang out that Palantir is expanding its government contracts, adding fuel to what has already been unprecedented investor sentiment, with PLTR skyrocketing over +1,300% in the last three years.

Following today’s rally, Palantir stock came within reach of its 52-week and all-time high of $133 a share, making it a worthy topic of whether now is a good time to buy PLTR for higher highs.

Government Contract Expansion

As reported by the New York Times, President Trump has tapped Palantir to organize personal data across multiple federal agencies, including the Department of Homeland Security (DHS) and the Internal Revenue Service (IRS). This initiative is aimed at streamlining data sharing and enhancing inter-agency collaboration, with Palantir having a niche in counterterrorism investigations and operations.

Expanding its AI software platform capabilities, Palantir also announced a collaboration with Fannie Mae FNMA this week to combat mortgage fraud, along with a $795 million contract modification with the U.S. Army, as the deal now has a total award of $1.3 billion. The Fannie Mae partnership will focus on launching an AI-powered Crime Detection Unit, with the U.S. Army deal extending its Maven Smart System (MSS) software licenses, which are designed to enhance AI-powered military operations by integrating advanced data analytics and AI-driven decision-making tools to support combatant commands in dynamic operations.

Palantir’s “A” Growth Score

Zacks projections currently call for Palantir’s total sales to increase 37% this year to $3.92 billion, versus $2.87 billion in 2024. Plus, fiscal 2026 sales are forecasted to soar another 28% to $5.02 billion. More importantly, annual earnings are expected to spike 44% in FY25 and are projected to rise another 24% in FY26 to $0.73 per share.

Taking a look at the trend of earnings estimate revisions, which the Zacks Rank is predicated on, Palantir’s FY25 and FY26 EPS estimates are up 7% and 6% in the last 30 days, respectively.  

Palantir’s “F” Value Score

Despite being profitable, Palantir stock trades at a very high forward earnings multiple of 208.3X. Although Palantir has moved past the speculative growth phase, investors may still consider metrics like price to sales (P/S) to better gauge the company’s valuation in accordance with its growth prospects. In this case, PLTR also trades at a stretched P/S premium of 92.6X compared to its Zacks Internet-Software Industry average of 4X and the S&P 500’s 4.9X.

One metric that alludes to Palantir’s valuation not being overly absurd is the PEG ratio, which is the P/E ratio divided by a company’s long-term growth rate consensus. Palantir has a PEG ratio of 5.9 compared to the industry average and the S&P 500’s 1.7. However, it’s noteworthy that a PEG under 1 or less is considered desirable or an undervalued growth rate.

Palantir’s “B” Momentum Score

The deciding factor that some investors may consider when engaging a stock is, of course, momentum. Having several short-term catalysts in regard to signing new contracts, Palantir still has a “B” Momentum score after rallying over +50% in the last three months and finishing the month of May up +10%.

Conclusion & Final Thoughts

While the Zacks Style Scores shouldn’t be confused with the Zacks Rank, Palantir currently has an overall “C” VGM grade for the combination of Value, Growth, and Momentum. Instead, the Zacks Style Scores serve as a complementary set of indicators to use alongside the Zacks Rank to best gauge the fit for an investor's personal trading style or risk tolerance. Keeping this in mind, Palantir stock currently lands a Zacks Rank #3 (Hold).

To that point, holding Palantir stock could certainly pay off, and it wouldn’t be surprising if higher highs are in store for PLTR, but the trend of positive earnings estimate revisions isn’t overly compelling after such a sharp rally, especially considering the company’s stretched valuation. However, after signing several contracts this week, it’s plausible that analysts begin to lift their stock price and EPS targets for PLTR, which would more than likely make the surge continue.  

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

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