"Tesla-style believers" escort Palantir's journey to new highs yet to be completed?

According to Zhitong Finance APP, the stock price of the American data software giant Palantir Technologies Inc (PLTR.US), focusing on "AI + data analysis," shows no signs of slowing down in its rapid rise. Despite having the highest valuation among U.S. tech stocks, investors remain captivated by its artificial intelligence revenue prospects. The tech company's AI vision and development commitments, along with its collaborations with the U.S. military, global intelligence agencies, and several large corporate clients, are attracting more and more investors who see growth opportunities for Palantir across various sectors worldwide.

Although most Wall Street analysts have reacted lukewarmly to Palantir's soaring stock price and have set target prices significantly below the current price, well-known investment firm Wedbush and many optimistic retail investors believe that Palantir will benefit from the ongoing geopolitical tensions and resilient macroeconomic backdrop. Palantir's management even expects sales to reach $3.9 billion by 2025, with free cash flow potentially hitting $1.5 billion.

Palantir's loyal fans, often referred to as "Tesla-like zealots," have been growing in number since 2024, continuously flocking to buy the stock, which has driven the data analytics software company's stock price to set new closing highs for three consecutive days on Tuesday, with a cumulative increase of 76% this year, making it the second-best performer among S&P 500 constituents, far outpacing the S&P 500 index's mere 1% gain this year. However, Palantir's expected price-to-earnings ratio for the next 12 months is as high as 205x, significantly exceeding the S&P 500 index's expected P/E ratio of only 22x.

Staggering Valuation - Palantir's Valuation Ranks Second Among S&P 500 Constituents

This is why long-term loyal bulls following Palantir are viewed by some institutions as "Tesla-like believers," primarily due to their obsession with the grand narrative logic of the tech company (similar to Tesla fans' beliefs in Tesla's energy storage systems, humanoid robots, and autonomous driving prospects, as well as Palantir investors' faith in Palantir's AI grand narrative), which far outweighs their focus on traditional valuation metrics; retail and institutional fans together have driven up the stock price, causing Palantir's trading momentum and P/E ratio to reach extreme levels, reminiscent of the early Tesla investment group that was "willing to pay for a grand vision."

Paul Marino, Chief Revenue Officer of Themes ETFs, stated in an interview: "You start to see a similar 'Tesla effect,' where valuation no longer matters because the company has a large number of true bullish believers." "These investors believe that whether it's defense systems, exchange data neutrality, data analysis, or artificial intelligence, Palantir holds significant opportunities." What is Palantir? What are its heavyweight products in the field of artificial intelligence?

Palantir was co-founded by billionaire Peter Thiel in 2003, and the company has long emphasized its strong collaborative relationship with the U.S. government and its allies. Its software products are used by nearly all major branches of the U.S. military and are a core force in the development of the country's military artificial intelligence projects. This U.S. big data software giant, headquartered in Denver, has evolved from providing exclusive services to the U.S. intelligence community to long-term collaborations with various government intelligence agencies in the U.S. and its allies, as well as long-term commercial partnerships with numerous companies such as CBS, General Mills, Aramark Services, Panasonic North America, and Cummins, making it one of the most influential tech companies in the U.S.

Palantir first gained global fame for providing crucial data and situational analysis support to the U.S. government during the operation to capture and kill Osama bin Laden; although Palantir has never officially acknowledged this, the media and military enthusiasts widely believe that Palantir played an important role in this process, which catapulted the company to fame.

In 2023, Palantir launched the Palantir Artificial Intelligence Platform (AIP), which received widespread attention and is now being used on a large scale by over 100 organizations worldwide, including in the healthcare and automotive industries. The company is also in talks with over 300 additional companies. The core selling point of the AIP platform is not that Palantir develops large language models (LLMs) itself, but rather focuses on AI applications. This platform also includes AI assistants similar to ChatGPT, which can help businesses analyze and make decisions regarding their big data operations, and assist clients in efficiently utilizing the modules and functions of Palantir's various platforms with a low technical threshold.

Palantir's generative AI platform "AIP" is fully integrated with Palantir's existing data analysis software ecosystem, allowing clients to access Palantir's core modules and functions through simple Q&A, enabling organizations to effectively apply generative artificial intelligence to data analysis, enhancing insights and operational efficiency. The platform supports a range of AI technology-driven applications, from automated management of material shortages, logistics and supply chain optimization to predictive maintenance and threat detection in complex computational scenarios.

Since 2023, Palantir's stock price has skyrocketed, and the core logic undoubtedly lies in the company's expanding influence in the field of AI applications, as well as the significant increase in market demand for its unique AI ecosystem and exclusive AI application software. Palantir's largest clients are the U.S. government and major global intelligence agencies, while also earning substantial revenue from large companies worldwide.

As Silicon Valley embraces defense technology companies, Palantir has expanded its collaborations with other tech companies. The company has strengthened its existing partnership with weapons manufacturer Anduril Industries Inc. and established a new partnership with AI startup Anthropic, introducing its large language model (LLM) into U.S. intelligence and defense operations These measures mark the beginning of a "new U.S. defense ecosystem" envisioned by Palantir executives, led by a software-first company rather than a traditional defense technology company.

Wall Street's Tepid Attitude Towards Palantir

Palantir has a strong momentum similar to the "frenzied hype" surrounding Tesla during 2020-2021—after a 167% increase in 2023 and a further 340% rise in 2024, it stands in stark contrast to the tepid response from Wall Street analysts. According to data compiled by institutions on Wall Street analyst ratings, the stock has only received 8 "buy" ratings, while there are 16 "hold" ratings and 5 "sell" ratings, making it one of the lowest-rated stocks in the S&P 500 index.

However, enthusiastic bulls argue that the market is overlooking a company that will benefit long-term from geopolitical situations and a resilient macro environment. Palantir collaborates with the U.S. military, with the usage of its Maven AI system doubling for the U.S. Army, while also serving major intelligence agencies worldwide; recently, it added NATO as a significant client and partnered with Freddie Mac to launch AI-driven crime detection tools. The company is also actively expanding its commercial and international customer base, both of which have enormous growth potential.

Since rebounding from a low in April, Palantir's strong performance has mirrored the broader market's recovery—amid Trump's erratic tariff comments, investors are seeking companies that can provide relative safety and robust growth prospects. Palantir's management expects revenue to reach $3.9 billion by 2025, a 36% increase from the previous year, and to maintain a strong growth trajectory; this year's free cash flow is expected to exceed $1.5 billion, representing a year-on-year increase of over 30%. As of Tuesday's close, Palantir's stock price was around $133.

David Wagner, a portfolio manager at Aptus Capital Advisors LLC, stated, "Funds are flowing back into sectors that the market believes can achieve unique growth paths; if you can accept a high valuation, Palantir fits that profile."

The focus of the global tech stock investment wave has begun to shift from computing hardware to software, providing significant support for Palantir's valuation. The company has also benefited from the "DOGE" initiative led by Musk to cut federal spending, continuing to secure U.S. government contracts during the Trump administration.

Another similarity to Tesla is the retail investor boost: according to Interactive Brokers statistics, Palantir ranked third in trading activity at the firm over the past week, behind only Tesla and Nvidia. Interactive Brokers' chief strategist Steve Sosnick noted that Palantir has remained in third place for most of this year.

Of course, rapidly rising stocks like Palantir may also face significant pullbacks—it fell over 40% from its February peak to early April low, echoing the sell-off of other large tech stocks like Nvidia. Wall Street analysts generally believe the current rally is overextended, with an average target price of only $103, indicating over 20% downside potential from the current stock price However, Wedbush has given the company an "outperform" rating and a target stock price of up to $140.

"Palantir needs to continuously deliver excellent financial performance to maintain upward momentum; the brief pullback in stock price after last quarter's earnings report has issued a warning. They must deliver on their promises to sustain the upward trend," said Ted Mortonson, Managing Director at Robert W. Baird & Co. "There can be no room for error in Palantir's valuation."