Down 33%! Is this S&P 500 growth stock worth considering?

Palantir (NASDAQ:PLTR) continues to be a standout performer in the S&P 500 in 2025. So far, its shares are up 12% this year. That’s on the back of a 340% rise in 2024.

Great enthusiasm for artificial intelligence (AI), in which the firm has been one of the leaders, has led this charge.

Its shares peaked in the middle of February at $124.62. However, because of valuation fears, combined with broader uncertainty due to Trump’s tariffs, Palantir has seen its stock drop by 33%.

For a company that’s been on a blast over the last couple of years and seen its shares move steadily upward, a dip this large is notable.

Therefore, it may be a chance for investors to consider buying some of its shares. On the flip side, it could also be a sign that the bubble has started to burst.

Why has Palantir stock fallen?

The primary issue investors have with Palantir is its valuation. To add perspective, even after its shares declined, the company still has a market cap of $201bn. Its revenue and net income in 2024 were only $2.9bn and $462m, respectively.

This gives it a price-to-sales (P/S) ratio of 73. Pricey for sure. I own shares in the company, and even I’ll admit its price-to-earnings (P/E) ratio of 452 is simply ridiculous.

For context, the AI firm is more valuable than American Express, which has a market cap of $186bn on the back of sales and net income of $61bn and $10bn, respectively.

Yes, Palantir’s growth and business are far more exciting than those of American Express, but it’s still unjustified.

With caution surrounding the valuation of US stocks and the emergence of a global trade war, this could be the start of the AI firm seeing a more sustained decline in its share price over the near term.

Huge potential

On the other hand, investors weren’t driving up the company’s stock earlier for no reason.

In its most recent quarter, Palantir saw its revenue jump by 36%. Moreover, while its revenue was only $2.9bn last year, Wall Street anticipates further growth of 32% in 2025 and 27% in 2026. This is pretty impressive.

So why has this happened? Well, its Artificial Intelligence Platform (AIP) has been a big hit among its commercial clients. This product allows the integration of AI models directly into the user’s platform. As a result, US commercial revenue skyrocketed 64% year on year (yoy) to $214m in its fourth-quarter results for 2024.

Furthermore, the big data analytics specialist is becoming increasingly important for the US military ecosystem. Revenue in this segment climbed by 45% to $343m yoy in the last quarter.

Final thoughts

I started buying Palantir shares at the start of 2022. I did so because I liked the company’s fundamentals and saw great potential for it. However, back then it was only a $27bn company.

Today, I’m even more enthusiastic about the company’s potential. Its AI products are superior to the competition’s and it’s providing game-changing applications for businesses. This might only be the start for the AI powerhouse.

But it has an astronomical valuation even when taking into account the recent pullback.

However, I also think the company has the potential to achieve astronomical success in the long term. Therefore, investors should consider its shares.

The post Down 33%! Is this S&P 500 growth stock worth considering? appeared first on The Motley Fool UK.

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Muhammad Cheema has positions in Palantir Technologies. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.