Palantir's Operational Gains Clash with Extreme Valuation Multiples

What happened

A Seeking Alpha article contends Palantir isn't overpriced, highlighting a shift to expansion-led growth with net dollar retention above 130% and adjusted operating margins expanding from low teens to over 40%. However, the DeepValue master report reveals the stock trades at a P/E of 387x and EV/EBITDA of 1193x after a 166% price surge, pricing in unrealistic sustained hyper-growth. The article's emphasis on deployment efficiency improvements, like five-fold faster software installation, is positive but glosses over the report's warning of a crowded, fragile trade where post-earnings sell-offs signal valuation scrutiny. Market sentiment has shifted to a 'priced for perfection' narrative, with the report's base case implying a $145 share value versus the current ~$179, suggesting 20% downside. Thus, while Palantir's business fundamentals are robust, its equity valuation offers no margin of safety, creating high risk for investors.

Implication

Palantir's strong operational metrics, including high margins and rapid revenue growth, are already fully priced into its stock, leaving no room for error if growth normalizes. The DeepValue report's scenario analysis shows unfavorable risk-adjusted returns, with a base case of $145 implying downside and only moderate upside in a bull case to $220. Any deceleration in U.S. commercial AIP revenue growth below 40% or margin compression could trigger sharp multiple contraction, given the extreme valuations. Investors should closely monitor Q4 2025 earnings and 2026 guidance for early signs of slowing momentum or competitive pressures. Until a material pullback occurs, maintaining a cautious stance aligns with the report's 'POTENTIAL SELL' rating and crowded trade assessment.

Thesis delta

The Seeking Alpha article does not materially shift the investment thesis from the DeepValue report, which already acknowledges Palantir's excellent fundamentals but flags severe overvaluation. Operational improvements like margin expansion and efficiency gains are positive but were anticipated in the report's base and bull scenarios, not justifying current multiples. The core thesis of a potential sell due to valuation risk remains unchanged, as the article lacks new data to challenge the report's conclusion that growth normalization would drive multiple compression.