It’s been a difficult year for Palantir Technologies(NASDAQ: PLTR) shareholders. The stock has declined 12% in 2026, while the S&P 500(SNPINDEX: ^GSPC) and Nasdaq Composite(NASDAQINDEX: ^IXIC) have gained 11% and 16%, respectively.
Palantir shares have retreated alongside many software stocks because investors are worried that artificial intelligence will disrupt the industry. But Wall Street thinks the selling is overdone. Palantir has a median 12-month target price of $200 per share, implying 28% upside from its current share price of $156.
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I am slightly less optimistic. I think Palantir will trade around $177 per share by May 2027. Here’s why.
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Palantir is an industry leader in AI decisioning software
Palantir develops data integration and analytics platforms for government agencies (especially those involved in defense and intelligence) and commercial organizations. The company has differentiated its products with a unique software architecture. While most analytics tools focus on reporting and spreadsheets, Palantir built its platforms around a decisioning framework called an ontology.
For example, an airline company might build an ontology that links physical assets like crew, airports, and airplanes to digital information like flight times, passenger counts, service dates, and travel routes. Machine learning models could then be applied to the ontology to optimize decisions about pricing, scheduling, and maintenance.
Additionally, Palantir provides a large language model (LLM) orchestration tool called AIP, which allows users to engage with data in natural language and allows AI agents to understand context and make decisions. In my previous example, AI agents could monitor flights and automatically update airports when departure and arrival times change.
Industry experts have praised Palantir for its powerful analytics tools. Last year, Forrester Research ranked the company as a leader in artificial intelligence decisioning platforms. And the International Data Corp. (IDC) recognized Palantir as a leader in AI-enabled source-to-pay software, which assists businesses with product procurement and vendor management.
More recently, Wedbush analyst Dan Ives called Palantir the “gold standard when it comes to AI use cases.” And Morgan Stanley analyst Sanjit Singh called Palantir the emerging standard in enterprise AI. “A multi-year headstart in building ontologies should sustain Palantir’s advantage,” he added in a note to clients.
Palantir is growing quickly, but it’s still the most expensive stock in the S&P 500
Palantir reported exceptional financial results in the first quarter. Revenue increased 85% to $1.6 billion, the eleventh consecutive acceleration, and non-GAAP net income soared 153% to $0.33 per diluted share. “Our financial results now demonstrate a level of strength that dwarfs the performance of essentially every software company in history at this scale,” said CEO Alex Karp.
However, Palantir’s valuation is still hard to justify, even though the stock is down 24% from its record high and the company is growing at a remarkable pace. Shares trade at 72 times sales, the highest valuation in the S&P 500 by a wide margin. CrowdStrike is the closest contender at 39 times sales. That means Palantir would still be the most expensive stock in the S&P 500 even if its share price dropped 45%.
Looking ahead, Wall Street estimates trailing 12-month revenue will increase 63% to $8.5 billion over the next year (i.e., through Q1 2027). Assuming a slightly lower valuation of 50 times sales, the company’s market value would be $425 billion at that point, which is 13% above its current market value of $375 billion. That implies a stock price of approximately $177.
As a caveat, while my prediction is somewhat conservative, particularly compared to Wall Street’s median target price of $200 per share, it is still possible that I overestimated what investors will pay for the stock in a year. If Palantir’s revenue growth is slower than expected, the market may assign the company a valuation far below 50 times sales.
Personally, I think risk-tolerant investors can purchase a small position in Palantir today, but I also believe there are better buying opportunities across the stock market. Palantir is undoubtedly executing on a large market opportunity, but the stock’s rich valuation leaves it predisposed to a substantial drawdown.
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Trevor Jennewine has positions in CrowdStrike and Palantir Technologies. The Motley Fool has positions in and recommends CrowdStrike and Palantir Technologies. The Motley Fool has a disclosure policy.
