Palantir stock surges on new government contracts, but are big investors quietly cashing out amid rising valuation risks?

Palantir stock jumps after government contracts, but is the price getting too high?- Palantir stock is making headlines again after a strong rally sparked by several new U.S. government deals. The data analytics and AI software firm beat Wall Street expectations in its Q1 2025 earnings, drawing fresh attention from investors. But as the price climbs, many are starting to ask: is Palantir stock becoming too expensive compared to its actual growth?

What’s fueling the latest rally in Palantir stock?

The main driver behind the recent jump in Palantir stock is a batch of big government contracts. In the first quarter of 2025, the company reported revenue of $884 million, up 39% year-over-year, according to Financial Times. That number blew past Wall Street estimates.

Palantir’s net income came in at $214 million, which is more than double what it reported a year ago — and about 20% above analyst forecasts. These results were largely powered by its deepening work with U.S. government agencies. Its signature Foundry software is now being used by the Department of Homeland Security, Department of Health and Human Services, and reportedly under discussion with both the IRS and Social Security Administration.

On the defense front, Palantir signed a $178 million contract with the U.S. Army and another $30 million deal with ICE. Overall, revenue from U.S. government contracts reached $373 million for Q1 — a 45% increase from the same time last year.

Is Palantir growing beyond government contracts?

Yes, and faster than some expected. While Palantir has long relied on government deals, its U.S. commercial revenue rose 71% year-over-year in Q1 to $255 million. That’s a big deal for the company’s long-term prospects.

Palantir is seeing growing demand from industries like healthcare, finance, manufacturing, and energy, where companies are starting to adopt its AI-driven platforms. Still, the majority of Palantir’s earnings — about 72% last quarter — came from public sector work.

That leaves investors wondering: can the company build a more balanced revenue stream? The jump in commercial growth is a strong sign, but it's not yet big enough to offset the risk of losing or delaying government contracts.

Why are analysts warning about Palantir’s high valuation?

Despite solid earnings, many experts are cautious about Palantir’s current valuation. The stock is trading at roughly 18.5 times projected 2025 revenue, and more than 50 times its unlevered free cash flow. Those are high numbers, especially in a tech market still adjusting to higher interest rates and tighter spending.

Some analysts argue that this valuation only makes sense if Palantir keeps delivering strong results quarter after quarter — without missing a beat. That’s a tough ask, especially since large government contracts don’t always follow a consistent schedule. Revenue can look great one quarter and fall flat the next.

Another concern is political risk. For example, the Trump administration’s proposed Department of Government Efficiency (DOGE) aims to cut federal spending. If implemented, such moves could limit how much agencies spend on tech tools like Palantir’s software.

Are institutional investors losing confidence in Palantir stock?

While Palantir stock is rising, some major investors appear to be stepping back. According to TipRanks, several institutional firms have been selling off shares and moving money into other AI-related stocks, including Taiwan Semiconductor (TSMC).

This shift doesn’t necessarily mean investors have lost faith in Palantir’s future. But it suggests that some are worried the stock price is getting too far ahead of its fundamentals. With a price-to-sales ratio around 19.5x forward revenue, any slowdown in growth or missed contract opportunity could quickly trigger a sell-off.

Is Palantir stock still worth buying in 2025?

It depends on your investment style and risk tolerance. Palantir is clearly a key player in AI and defense-related analytics. It’s posting six consecutive quarters of GAAP profitability, expanding in the commercial market, and still landing huge federal contracts.

But the stock is also priced high. It has gained nearly 30% year-to-date, which means there’s less room for error. If earnings disappoint or contract wins slow, the price could fall just as fast as it rose.

For long-term investors who believe in Palantir’s tech, its deep roots in U.S. defense, and the growth of AI in enterprise systems, the company may still be a good pick. But it’s not a low-risk play — especially with budget talks and political shifts looming in Washington.

Is Palantir stock overvalued or just getting started?

Palantir stock is hot again — and for good reason. Strong earnings, major government contracts, and fast growth in the commercial sector are giving the company real momentum in 2025. But at the same time, the stock’s high price tag is raising eyebrows across Wall Street.

Investors need to keep a close eye on a few key factors: future contract wins, profit margins, and how quickly Palantir can grow its non-government business. If the company keeps executing, there’s a path forward. But if growth slows or politics shift, that high valuation could become a problem.

For now, Palantir stock is a mix of promise and caution — a fast-rising tech firm with powerful government ties, but also one that faces real questions about consistency and cost

FAQs:

Q1: Why is Palantir stock going up in 2025?
Palantir stock is rising due to strong Q1 earnings and major U.S. government contracts.

Q2: Is Palantir stock overvalued right now?
Yes, many analysts believe Palantir stock may be too expensive based on its current growth.