Palantir's High-Stakes Earnings Test: Can AI Darling Justify Lofty Valuation Amid Tech Skepticism?
NEW YORK (MarketWatch) — For years, Palantir Technologies Inc. has ridden a wave of investor enthusiasm, often seeing its shares climb ahead of quarterly results. That pattern has broken. As the data-analytics company prepares to report earnings after Monday's market close, its stock is languishing — a stark sign that the market's patience for expensive growth stories, even in the red-hot field of artificial intelligence, is wearing thin.
Palantir's shares have tumbled 29% from their peak last November and are down 18% year-to-date in 2026, ranking it among the worst performers in the S&P 500. This sell-off, however, has done little to dent its eye-watering valuation. The stock still trades at roughly 142 times expected earnings, the third-highest multiple in the benchmark index.
The backdrop is a broader recalibration in the technology sector. After a frenzy of investment in AI infrastructure, investors are now demanding tangible returns. Money is rotating away from early AI winners toward companies seen as direct beneficiaries of massive spending by cloud "hyperscalers" like Microsoft, Amazon, and Alphabet. This shift has put pressure on software stocks, including Palantir, which must now demonstrate durable, profitable growth to justify their premiums.
"The 'growth at any cost' narrative has expired," said Mark Giarelli, an analyst at Morningstar Investment Service who maintains a sell rating on the stock. "Investors are now forensic accountants, digging for proof that these valuations are anchored in reality, not hype."
Wall Street expectations remain high. Analysts, on average, forecast adjusted earnings per share of 23 cents for Q4 2025, a 63% year-over-year increase, on revenue of $1.3 billion, up 61%. The focus, however, will be squarely on forward guidance. More than half of Palantir's revenue comes from government contracts, a segment expected to grow over 50%. But the key to reigniting the stock's 135% rally from last year likely lies in its commercial business, where U.S. revenue is anticipated to surge over 70% to nearly $650 million.
Some see the recent pullback as a necessary correction. "The valuation coming down from its stratospheric peak is actually healthy," noted Que Nguyen, Chief Investment Officer at Research Affiliates. "It suggests the company is growing into expectations, rather than investors perpetually ratcheting up hopes in an irrational way."
Technically, the steep decline has pushed the stock near oversold levels, breaching several key moving averages. "There are technical support levels coming into play that could provide a floor," observed Jake Behan, head of capital markets at Direxion.
The bar, however, is exceptionally high. "Palantir has conditioned the market to expect perfection," said DA Davidson analyst Gil Luria. "They've set a tough bar to clear. To avoid the post-earnings sell-off we saw with peers like Microsoft and ServiceNow, they need not just a beat on earnings, but also robust, confident guidance."
Portfolio managers agree. "A conservative outlook will be punished," said Joe Tigay of Equity Armor Investments, a Palantir shareholder. "The Street needs a reason to run the stock higher again. It's a 'show me' story now."
All eyes will also be on Palantir's charismatic CEO, Alex Karp, whose bullish commentary has historically moved markets. "Karp is the ultimate cheerleader," Direxion's Behan added. "His ability to spin a narrative and rally buyers, regardless of the print, shouldn't be underestimated."
Market Voices: A Divided Street
We asked several market participants for their take ahead of the report:
Sarah Chen, Portfolio Manager at Horizon Growth Fund: "This is a pivotal moment for thematic AI investing. Palantir's platform is genuinely differentiated, especially in government and complex enterprise. The commercial growth trajectory is what we're watching. If that holds, this pullback is a buying opportunity."
Marcus Thorne, Independent Hedge Fund Analyst: "It's sheer insanity. A 142 P/E ratio in this rate environment? The entire thesis hinges on Karp's salesmanship and indefinite hyper-growth. One quarter of commercial slowdown and this house of cards collapses. The risk-reward is terrible." (More emotional/尖锐)
David Park, Chief Technology Officer at a Mid-West Pension Fund: "Our interest is long-term. We're less concerned with quarterly volatility and more with Palantir's moat in data integration for large institutions. The sell-off has made the entry point more interesting for a strategic, small position."
Rebecca Shaw, Retail Investor & Founder of 'Tech Talk' Newsletter: "The sentiment shift is palpable in online forums. Many retail investors who rode the wave up are now nervous. They're looking for reassurance that the foundational story — AI-driven decision-making — is still intact and monetizing."
— Reporting by Bloomberg News; editing by MarketWatch.
©2026 MarketWatch. All rights reserved.