With shares up 647% since 2022, Palantir Technologies(NASDAQ: PLTR) has performed spectacularly over the last three years, highlighting the potentially life-changing power of tech investing. However, past performance doesn't necessarily guarantee future results, leaving new investors wondering if the software company can continue its bull run. Let's discuss what the next three years could have in store.
Data analytics with a twist
Since its founding in 2003, Palantir has emerged as a leader in big data analytics, enabling organizations to uncover actionable insights, detect fraud, and optimize their operations by sifting through vast volumes of information.
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This technology can be thought of as a precursor to the generative artificial intelligence (AI) popularized by OpenAI's ChatGPT. Over the last three years, Palantir's shares have surged alongside other tech stocks, such as Microsoft and Nvidia, which also have exposure to the AI industry.
But Palantir's incredible rally is about more than just AI. The company's co-founder, Peter Thiel, is an outspoken supporter of the Trump administration. And Palantir was one of several tech stocks that boomed after Trump's election victory, perhaps on the assumption that political proximity could be beneficial to its long-term success.
Palantir is securing new contracts
Palantir's economic moat stems from its close relationship with U.S. government clients and its resilience against public pressure. During the previous Trump administration, the company refused to back down from its controversial work with Immigration and Customs Enforcement (ICE). More recently, it was awarded a $480 billion deal to help build the army's Maven Smart System -- a data analytics contract that Alphabet's Google famously abandoned amid employee backlash in 2018.
Google's retreat turned out to be a significant opportunity for Palantir, especially in relation to lucrative military contracts. In 2024, the company signed a series of agreements with the governments of Ukraine and Israel for various projects, including battlefield targeting and post-conflict demining.
Image source: Getty Images.
However, Palantir's most significant breakthrough may have come in April, when NATO (a military alliance of 32 countries in Europe and North America) finalized a deal to utilize the company's Maven Smart System to recommend and prioritize targets during combat operations.
Analysts are optimistic that the NATO deal could mark the beginning of more positive developments for Palantir. Wedbush analyst Dan Ives proclaimed that the company could benefit from a "tidal wave" of government spending on AI systems. He might be right. While the Trump administration initially claimed it wanted to reduce the Pentagon's budget, it has radically changed course, with Trump promising a record $1 trillion in defense spending for 2026, a 12% increase from current levels.
The new administration is also pressuring NATO allies to increase their defense spending, although it remains unclear whether they will turn to American companies like Palantir or opt for homegrown solutions.
The stock's valuation is still way too high for comfort
Palantir has some exciting catalysts for growth over the next three years. After all, it boasts a deep economic moat in the fast-growing market for data analytics and AI solutions. And its success in attracting high-profile clients, such as the U.S. Army and NATO, could bolster its reputation with both public and private sector clients. That said, a good business isn't always a good investment when valuation is taken into consideration.
Management only expects revenue to grow 31% year over year (to between $3.7 billion and $3.8 billion) in 2025, which isn't exciting for a stock trading for 79 times sales and 172 times projected future earnings. For context, the S&P 500 index trades for just 20 times forward earnings, so to call Palantir priced for perfection seems like an understatement. Investors who buy the stock now face the risk of substantial downside.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
