Is Palantir the best artificial intelligence (AI) stock for 2025?

Palantir (PLTR 8.54%) It has quickly emerged as a top artificial intelligence (AI) stock for many investors. By 2024, its stock price has more than quadrupled and it has a huge following.

But with all that success comes an obvious question: Is Palantir still the best AI choice for 2025? I think the business is poised for success next year, but there are also high expectations for the stock.

Palantir’s market has tremendous room for growth

Palantir creates AI software for customers that gives people the most up-to-date information possible to make decisions. It was originally used in the government sector but has since expanded to the private sector.

One of Palantir’s most promising products is its Artificial Intelligence Platform (AIP). This allows businesses to integrate generative AI models into their workflows rather than using third-party tools separately. This is a big step forward for AI becoming more integrated into the workplace, and has the potential to make employees much more efficient and reduce mistakes.

AIP demand soared Palantir’s growth rate, with third-quarter revenue growing 30% year-over-year to $726 million. But its strongest segment by far was its U.S. commercial business, which saw sales rise 54% to $179 million. Moreover, with only 321 U.S. commercial customers, there is clearly plenty of room for growth.

If Palantir can gain significantly more U.S. commercial customers and spread that growth to government and international customers, Palantir’s stock price could just start to rise significantly. At least that’s the bull case for the stock. However, there are some important caveats here that need to be addressed.

Stocks have outpaced business

There’s a reason Palantir’s list of U.S. customers is relatively small. That’s because Palantir’s software is very expensive. Multiply your U.S. third quarter sales by 4 (to calculate the annual rate) and divide that number by the number of customers to get your revenue per customer. In the third quarter, this figure was $2.23 million. This is an average cost per customer, but it seems reasonable to infer that if you use Palantir, you’re spending at least $1 million per year with the company.

That’s a price tag that many companies can’t afford, so Palantir’s potential customer base is limited. Additionally, companies with this kind of budget have access to significant technological resources and may be able to build some of Palantir’s products themselves. So if you think tens of thousands of companies will sign up for Palantir’s software over the next decade, you should rethink your analysis.

The problem is that Palantir deals like customers who are already signed up.

Palantir’s stock currently trades at an incredible 65 times sales and 358 times earnings!

PLTR PS Ratio Data from YCharts

Compare to popular AI stocks nvidia (NASDAQ: NVDA)Nvidia, which trades at 51 times earnings and 28 times sales, is much more expensive despite growing at a much faster rate.

So what kind of growth will Palantir need to go through to reach Nvidia’s level? present evaluation? There’s a lot more than what I’m showing you right now.

Let’s assume Palantir can achieve two things:

• 30% profit margin (up from current 20%)
• 40% growth in company-wide sales

If that happens, it would take more than four years for the stock to rise to the same price valuation as Nvidia (excluding the effects of stock-based compensation). This is a four-year period during which the stock price remains unchanged and increases and maintains growth at its current level.

These assumptions do not add up, especially with respect to limiting factors in the pricing of Palantir products. As a result, we think investors should be looking for new AI stocks in 2025. Because there are much more attractive options that don’t have outrageous expectations.