TLDR
- PLTR stock jumped 3% Friday as Middle East tensions drove defense sector interest
- Company delivered strong Q1 results with 55% US revenue growth and commercial sales up 71%
- Stock now trades at 108 times sales, far above historical norms for tech companies
- Analysts warn current price requires 31% annual EPS growth for next decade to justify valuation
- Multiple experts call PLTR an “epic bubble” despite acknowledging strong business fundamentals
PLTR stock climbed 3% Friday afternoon as investors flocked to defense names following Israeli strikes on Iranian nuclear facilities. The geopolitical tensions sent oil futures up 13% and pushed defense contractors higher across the board.
Israeli Prime Minister Benjamin Netanyahu suggested more operations could follow as the country targets Iran’s nuclear capabilities. Former President Trump urged Tehran to accept a US-brokered nuclear deal before it’s too late.
The defense spending backdrop helped PLTR extend its remarkable run. The stock has gained over 2,000% since early 2023 and jumped 45% just since April when the company landed a major NATO contract.
PLTR’s business momentum looks genuinely strong. The company crushed Q1 expectations with revenue beating estimates by 2.5% and earnings slightly topping consensus at $0.13 per share.
US revenue surged 55% year-over-year in Q1, now representing 71% of total sales. Commercial revenue in the US exploded 71% higher while government contracts grew 45%.
Strong Fundamentals Drive Growth
The company’s Artificial Intelligence Platform (AIP) is seeing massive demand. US commercial total contract value hit $810 million in Q1, up 239% on a dollar-weighted basis.
Deals worth $1 million or more doubled compared to last year. That client stickiness gives PLTR recurring revenue visibility that most tech companies would envy.
PLTR’s Rule of 40 score reached 83% in Q1, up from 81% the previous quarter. The metric combines revenue growth and profit margins to measure software company health.
Adjusted free cash flow hit $370 million with a 42% margin. Non-GAAP operating margins expanded to 44%, up 800 basis points from last year.
The NATO Maven deal remains a key catalyst. With NATO members pushing defense spending toward 5% of GDP and Trump’s proposed $175 billion “Golden Dome” missile defense system potentially including PLTR, government contracts could accelerate.
The Valuation Reality Check
But here’s where the math gets uncomfortable. PLTR currently trades at 108 times trailing sales. For context, previous tech bubble peaks saw leading companies max out between 30-43 times sales.
The market is pricing in 31.2% annual EPS growth for the next decade. Even with bullish assumptions, that creates a nearly impossible hurdle.
One analyst ran the numbers assuming PLTR quadruples earnings by 2028 instead of the projected triple. Even in that rosy scenario, the stock would trade at 58 times forward earnings.
Compare that to other high-growth AI companies. SoundHound trades at 13 times forward sales for 2027-28. C3.ai sits at just 4.6 times on the same metric.
PLTR could trade sideways for five straight years and still have a higher valuation than where previous bubble stocks peaked. That’s how stretched the current price appears.
Multiple analysts now warn of an “epic bubble” despite praising PLTR’s business quality. The company offers a sustainable competitive advantage with its Gotham and Foundry platforms that lack direct replacements at scale.
PLTR doesn’t face the typical tech company worry about customers jumping to competitors. Government contracts provide cash flow predictability that helped drive profitability ahead of Wall Street expectations.
Yet historical data shows every major technology innovation has faced a bubble-bursting event early in its expansion cycle. Most businesses haven’t optimized their AI investments or generated positive returns yet.
The latest geopolitical tensions provided another short-term boost for PLTR stock. Defense spending increases could benefit the company through both government contracts and NATO expansion opportunities.
Current tensions in the Middle East have investors watching for potential retaliation and wider geopolitical fallout that could drive further defense sector interest.
