Lubin Investment · Blog

Should you buy Palantir (PLTR) stock in 2026?

2026-07-20 ·

PLTR: see the full analysis on Lubin Investment

Palantir passes 8 of my 10 financial quality criteria, with a cash trajectory that went from deeply negative to one of the best profitability profiles in software in five years. But the stock trades today at nearly 177 times its annual cash, one of the highest multiples in my entire universe. Exceptional quality, an equally exceptional price: here's how I separate the two.

A company the general public barely understands

Palantir Technologies sells data analytics software to organizations that need to make complex decisions from data scattered across dozens of different systems. Its story starts in 2003 with funding from the CIA through In-Q-Tel, its technology investment arm, to help US intelligence agencies cross-reference data after the September 11 attacks. Two decades later, the company has widened its field: the US Army, immigration enforcement (ICE), the US tax authority (IRS), Space Force, the Treasury Department, and increasingly private companies through its AIP (Artificial Intelligence Platform).

In December 2025, the UK Ministry of Defence awarded it, without a tender, a three-year, £240 million contract for strategic and tactical operational data analysis. On the US federal side alone, Palantir recently secured over $900 million in new contracts spanning the Army, ICE, the IRS, Space Force, and the Treasury. This government base, long seen as its only business, remains solid (US government revenue up 84% year over year in Q1 2026), but it's no longer the main story.

The real engine: the commercial pivot through AIP

What changed the investment case on Palantir is the adoption of its AIP platform by private companies, outside any government contract. In Q1 2026, US commercial revenue jumped 133% year over year to $595 million, and crucially, the value of remaining US commercial contracts still to be honored grew 145% to $4.38 billion. That last figure matters more than the current quarter: it's revenue already signed, not yet recognized, a signal of visibility over the coming quarters. Management raised its 2026 guidance to $7.2 billion in revenue, implying 61% growth for the year.

Palantir's moat (the competitive advantage that protects a company from rivals) comes from a rare mix: the security clearance and trust required to handle classified data, built over two decades with the world's most demanding agencies, and a product designed to embed deeply into an organization's decision-making processes, which makes switching suppliers costly and slow. Once an army or a bank has built its decision flows around AIP, leaving means rebuilding months of configuration, not just switching a simple software subscription.

Financial quality: a trajectory that went from red to deep green

Palantir passes 8 of my 10 quality criteria, but the most telling number isn't in the score, it's in the trajectory. In 2020, the company was burning cash: -$309 million in free cash flow for the year. Five years later, in 2025, it generates $2.10 billion, with a 37.5% free cash flow margin, one of the best in all of publicly traded software. Revenue grew more than fourfold over the period (from $1.09 billion to $4.48 billion), and return on capital employed (Cash ROCE, cash generated relative to the capital a company employs) comes out at 218.9%, an extreme level that reflects a business model needing very little physical capital to run.

The point most worth watching is the discipline on stock-based compensation. In 2020, Palantir handed out $1.27 billion in stock-based compensation to employees, more than its total revenue that year: a classic red flag for a company funding its talent through massive shareholder dilution rather than real cash. In 2025, that figure dropped to $684 million, a nearly 50% decline even as the company quadrupled its revenue over the period. Dilution remains real (shares outstanding still rise 7.6% a year on average over five years, the only criterion Palantir fails in my filter), but the trajectory is the right one: less dilution for more growth, the opposite of the path a deteriorating company takes.

The price: one of the most extreme multiples I track

At the current price of $134.85, Palantir trades at 177.1 times its annual free cash flow. For scale: the infrastructure software sector Palantir belongs to in my rankings trades at a median of 29.1 times cash, across 108 companies compared. Palantir therefore sits at the 90th percentile of this sector, meaning it's more expensive than 9 out of 10 companies in its own sector. I don't, however, have a reliable five-year valuation history series for this specific stock (data unavailable from my source), so I can't tell you directly whether 177 times is a peak or an average for Palantir itself: I state that clearly rather than invent a figure.

What I can compute is my reasonable buy price based on conservative assumptions about future cash-per-share growth: it comes out at $28.27. At the current price, the stock trades at a 79% premium versus that threshold. In other words, even factoring in strong growth into the model, today's price assumes that growth continues at an extremely sustained pace for many years without a hitch, a fragile assumption for any company, however excellent.

The real debate: how far does the AI conviction justify the price?

As with Datadog and Dynatrace, two other fast-growing tech stocks I compared this week, the entire Palantir thesis boils down to a question of conviction: do you believe AIP adoption by companies will keep accelerating at the current pace (133% US commercial growth) for long enough to catch up with such a high multiple, or do you think this pace will inevitably slow, as it does for any fast-growing company as it gets bigger? Management itself targets 61% revenue growth for 2026 in its official guidance: even on that ambitious basis, the current multiple bakes in a very generous conviction premium.

The nearest catalyst to watch: the next quarterly results are due August 3, 2026. A reacceleration in commercial revenue would confirm the bullish case; any slowdown, even a mild one, on a stock priced at this level, historically translates into violent price moves in either direction.

My verdict

Palantir is a company whose quality has transformed in just a few years: from a cash-burning machine funded by massive dilution to one of the most capital-efficient software models I track, with a stock-based compensation discipline that's clearly improving. But quality and price remain two separate questions in my method, and on price, Palantir ranks among the most extreme valuations in my entire universe, at the 90th percentile of its own sector. I never bet on conviction alone: I set my reasonable buy price ($28.27) and wait for it to come to me, rather than chasing a story, however compelling.

FAQ

Is Palantir a good company under your method?

Yes, on quality: it passes 8 of my 10 financial criteria, with a 37.5% free cash flow margin and an extreme return on capital employed (218.9%). Its only notable weakness is shareholder dilution, still real though clearly improving.

Why does Palantir trade at such an expensive valuation?

The market is betting on continued very fast commercial growth (+133% US commercial revenue year over year, driven by adoption of its AIP artificial intelligence platform). The higher the expected growth, the higher a multiple the market accepts to pay on current cash.

What is Palantir's AIP platform?

AIP (Artificial Intelligence Platform) lets an organization connect its internal data to AI models to automate complex decisions, while keeping strict control over data security and governance, a key point for its government clients and large regulated enterprises.

Should you buy Palantir stock now?

Under my strict model, no: the stock trades at a 79% premium versus my reasonable buy price of $28.27. This is not personalized investment advice, do your own research.

Is Palantir still dependent on government contracts?

Its government base remains solid (+84% US government revenue year over year), but it's no longer the sole engine: commercial revenue from private companies is now growing faster (+133% year over year) and is becoming the main driver of the thesis.

PLTR: see the full analysis on Lubin Investment

About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).