Since its founding in 2003, software and AI company Palantir Technologies (PLTR) has built a reputation among the mainstream media and the public due to a misunderstanding of how its business operates.

Often miscategorized as a data miner, Palantir designs and licenses custom-built and AI-powered solutions to its clients to help them manage vast amounts of data.

The company built much of its success on being the U.S. government’s contractor of choice for national security, law enforcement, and intelligence needs.

Investors have been big fans of this company because it has performed well so far in 2025, as its stock is up 600% compared to 2024.

Even though it has shown that it can execute on its business strategy, Palantir’s meteoric rise should serve as a cautionary tale for investors.

Despite being a compelling stock, the market has placed astronomic expectations on its ability to deliver future returns. 

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Throughout much of its early years, software company Palantir Technologies (PLTR) flew under the radar, until it built traction in the 2010s, as it became a partner for companies who wanted to keep pace with the trend of “Big Data.”

Co-founded in 2003 by Peter Thiel and led by CEO Alex Karp, Palantir has built up a reputation among mainstream media and even Silicon Valley and Wall Street observers.

Much of this mysterious reputation is attributed to the fact that the public largely misunderstands what the company actually does.

Some believe Palantir buys and gathers data and then resells it to the U.S. government. Meanwhile, others think that the company has a vast information database collected from its clients. 

In reality, the company is none of these things. In simple terms, Palantir designs and licenses software solutions that enables its customers to manage and analyze the data they already have. 

What sets the company apart is that its systems are designed with nontechnical end-users in mind. Its software platforms enable users to extract insights from vast data feeds without having to write a single line of code.

Palantir currently operates four major platforms. 

Foundry is the platform offered for use in commercial and government applications. This involves helping businesses or organizations manage inventory, monitor assembly lines, and track orders. Meanwhile, Gotham is an investigative tool tailored specifically for law enforcement, intelligence, and government applications. 

Apollo ships software updates and provides support to the Foundry and Gotham tools. 

Launched in 2023, the Artificial Intelligence Platform (“AIP”) is the most recent addition to the company’s platforms. It’s a suite of AI-powered solutions meant to be integrated into either Gotham or Foundry.

Since its founding, the software firm’s business strategy has revolved around building and selling its suite of data analytics solutions to the U.S. government and its national security and intelligence agencies.

The company has built software solutions for the U.S. intelligence community, with its client base composed of government agencies such as the Central Intelligence Agency, the National Security Agency, the Federal Bureau of Investigation, the Department of Defense, and others.

By being a proven partner of the U.S. law enforcement and its broader national security apparatus, Palantir has turned itself into an indispensable contractor of the federal government. In fact, it was even tapped by the Recovery Accountability and Transparency Board in 2009 to build software tools that would enable the government to prevent, detect, and investigate financial fraud, waste, and abuse. 

Palantir has since expanded its customer base to include foreign governments and public and private companies. 

By catering to both government and civilian entities, the software company has largely grown its business for the past several years. Palantir ended 2024 as the S&P 500’s best performing stock by generating returns of 340%. 

Investors have been big fans of this stock so far in 2025, with its shares up 600% from last year as the company has solidified itself not only as a valuable government contractor but also as a leader in the early stages of the AI revolution.

During the second quarter of 2025, the company’s U.S. Commercial Total Contract Value (“TCV”) soared to $843 million, up by 222% YoY. Furthermore,  revenues grew 48% YoY to $1 billion, beating analyst expectations of $940 million. Full-year guidance was also raised to between $4.142 billion and $4.150 billion, up from $3.89 billion to $3.90 billion.

Recently, the Department of Defense boosted its contract with the company to beef up its AI capabilities by $795 million. So far, it has received $322 million from government contracts during the first six months of 2025, a 12% increase from the same period in 2022. 

While these are impressive results, they also serve as a caution to investors.

It’s hard to deny that Palantir is a good company. 

However, after its strong performance as of late, this stock is far from cheap, as investors have set sky-high expectations for the company.

We can see what the market thinks through our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

At current valuations, investors expect Palantir’s Uniform return on assets (“ROA”) to reach more than 500% by 2029, a massive increase from the 19% it generated in 2024.

The company continues to be a major player in the AI boom through its AIP platform and development of solutions for complex AI use cases. The U.S. government has also shown that the firm is a contractor of choice.

While there’s no doubt that the company’s long-term prospects make it compelling, the market has placed sky-high expectations on this stock.

If Palantir falls victim to any short-term swings, the market may punish it for failing to meet what’s expected of it.

While momentum can be a powerful force to follow in the market, it is important for investors to be wary as a company’s valuations rise.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research