While its sky-high valuation has many investors and analysts scratching their heads, data analytics giant Palantir Technologies is demonstrating a fundamental business strength that may well outlast the current exuberance surrounding artificial intelligence (AI). The company, known for its sophisticated software used by entities ranging from the CIA to fast-food chains, finds itself at the centre of a fierce debate between its bullish retail supporters and skeptical Wall Street veterans.
The Valuation Conundrum and Mounting Skepticism
Palantir currently commands a staggering market valuation of nearly $450 billion. This translates to a price-to-sales ratio of 137 and a dizzying price-to-earnings multiple of 624 based on the past twelve months. For perspective, even Nvidia, the world's most valuable company and a titan of the AI chip boom, trades at a far more modest 28 times sales and 54 times profit. This extreme premium has led many to label Palantir a meme stock, amplified by its polarising CEO Alex Karp and a dedicated base of retail investors.
The ranks of doubters grew significantly in November 2025. Following the release of strong quarterly results, Palantir's shares plunged by 8% after it was revealed that famed investor Michael Burry, who predicted the 2008 financial crisis, had taken a substantial short position against the company. Karp, in a characteristically fiery letter accompanying the November 3rd results, dismissed critics as being in a state of "deranged and self-destructive befuddlement."
Fundamental Strength Beneath the Hype
Despite the stock market drama, Palantir's underlying business metrics tell a compelling story of growth and scaling profitability. For the quarter from July to September 2025, the company reported a year-on-year revenue surge of 63%. More impressively, its operating profit skyrocketed by 248%. Investment bank Morgan Stanley noted it was "hard to find a better fundamental story in software."
This growth is heavily driven by AIP, Palantir's suite of AI software tools. The demand for AIP helped the company secure 53 deals worth over $10 million each in its most recent quarter, a massive increase from just 16 such deals a year prior. Crucially, once clients integrate Palantir's systems into their core operations, disentangling becomes difficult, creating a powerful, sticky customer base.
A Unique and Profitable Engine: The FDE Model
Palantir's secret sauce is its unique implementation model, centred on Forward-Deployed Engineers (FDEs). Unlike typical software firms, Palantir embeds these engineers directly within client organisations to tailor its platforms. Founded in 2003, the company only turned its first annual profit in 2023, as this intensive model finally achieved scale. The knowledge FDEs gain from solving complex problems for one client makes the software more valuable for all others.
This approach has proven so successful that it has spawned imitators across Silicon Valley, with firms like OpenAI and Anthropic now hiring similar roles. However, Palantir insiders argue these rivals copy the form but not the function, risking a drift towards generic, off-the-shelf software.
Government Spending: A Reliable Tailwind
A significant and growing pillar of Palantir's resilience is its deep ties to government, particularly in defence and security. Government work accounts for more than half of its total revenue. Since the return of Donald Trump to the White House in January 2025, the company has won numerous U.S. contracts in areas like defence and immigration enforcement. While most government revenue is American, Palantir is also expanding its work with allies, including the British government.
The inherent secrecy of much of this government work adds a layer of opacity that makes Palantir notoriously hard to value. Executives further complicate public understanding by using jargon like "ontology." Yet, behind the mystique lies a business that has built a formidable, and likely durable, competitive moat. Even if the broader AI hype fades, Palantir's entrenched position in national security and complex commercial operations suggests its business is built to last.
