Palantir's 102x Sales Valuation Raises Red Flags: Why the 25% Decline Might Not Be Enough Correction

Palantir Technologies (NASDAQ: PLTR) has emerged as a dominant force in enterprise AI, but investors need to look beyond the bull case before getting too excited about recent price action.

The Price Drop Masks Deeper Valuation Concerns

The stock has retreated 25% from its November highs following hedge fund manager Michael Burry’s disclosure of a significant short position. While some view this as a buying opportunity, the reality is far more complicated. At current levels, Palantir still commands a 102 times sales valuation—by far the highest in the S&P 500. For context, the next most expensive company, AppLovin, trades at just 32 times sales. Even if Palantir’s share price were to fall another 66%, it would remain the priciest stock in the index by this metric.

What CEO Alex Karp Got Wrong

During a CNBC appearance, Palantir’s CEO blamed short sellers for market manipulation, dismissing the bearish thesis as nonsensical. Karp’s defense conflates two separate issues: whether the company builds excellent software (it likely does) and whether the stock deserves its current price (that’s debatable). His dismissal of valuation concerns as mere attacks on product quality reveals a troubling blind spot. Even the world’s best software company isn’t worth any price.

The Software Story is Real, But Valuation is Brutal

Palantir’s credentials are genuinely impressive. Its Gotham platform revolutionized intelligence operations, its Foundry system powers decision-making across finance, healthcare, and manufacturing, and its AIP platform (launched in April 2023) has positioned the company as a leader in enterprise AI orchestration. Sales growth has accelerated for nine consecutive quarters, and analysts recognize Palantir as a technology leader in machine learning platforms.

But here’s the problem: none of this justifies a 102x sales multiple. When Karp made his market manipulation comments, the valuation had climbed to 125 times sales—an unsustainable level that few software stocks have ever achieved. History shows these extremes don’t persist.

The Investment Case Remains Too Risky

Palantir’s AI exposure is undeniably valuable, and strong financial results likely continue ahead. However, the risk-reward setup is skewed dangerously toward downside. The recent 25% pullback, while notable, hasn’t reset expectations enough. Investors would be wise to either avoid the position or keep exposure minimal until valuation becomes less absurd. Sometimes the best trade is waiting for a better entry point, even when the underlying business is exceptional.