Palantir is one of the most debated stocks in the market. To the bulls, it is the defining software company of the AI era. To the bears, it is a wildly overpriced stock destined to fall back. Both sides are fighting over the valuation. What the argument misses is the business underneath it, which has quietly changed into something more durable than either camp gives it credit for.
The Government Story Is No Longer the Whole Story
For years, Palantir was known as a government contractor. It built software for defence and intelligence agencies, and that reputation stuck. It also became the easy knock against the stock, that its growth depended on winning unpredictable government deals.
That description is now outdated. In the first quarter of 2026, Palantir’s US business grew 104% from a year earlier. The fastest-growing piece of it was US commercial, meaning ordinary companies buying its software to run their operations. Management raised its full-year US commercial guidance to more than $3.2 billion, implying growth of over 120% for the year. This shows that Palantir is evolving into a mainstream enterprise software business rather than relying primarily on defence contracts for its growth. This is what most people seem to miss. The company’s growth now relies more on steady, repeatable business than the government work it started with.
Why Cheaper AI Helps Palantir Instead of Hurting It
In recent times, an even louder bear argument is that powerful AI models are becoming cheaper every month, and this will make what Palantir sells less valuable. If cheaper and capable models are available, why pay Palantir?
The answer is that Palantir does not sell the model. It sells the layer that connects a company’s real-world data to those models, which it calls the Ontology. A model on its own does not know a company’s supply chain, its customers, or its internal rules. Ontology is what turns raw AI into something a business can actually act on safely. Palantir Chief Technology Officer Shyam Sankar has argued that falling AI model costs are a tailwind rather than a threat. This makes sense when you think about what Palantir offers. Cheaper AI means more companies using it, and more usage means more demand for the layer that governs it. The moat is also confirmed by the fact that net dollar retention stood at 150% in the first quarter of 2026, proving that existing customers were spending more rather than leaving.
A Valuation That Only Works If the Growth Does
None of this makes the stock cheap. Palantir trades at a forward Price-to-sales ratio of about 38 times. Though it is only 9% above its own historical average, the multiple is significantly higher than the normal software standard. The forward earnings multiple of roughly 91 times has no clean history to compare against, since the company only recently turned consistently profitable. What explains these numbers is the EPS outlook. Analysts currently expect earnings to grow about 97% in 2026, and then stay above 40% every year for the rest of the decade. The balance sheet is also one of its strongest aspects. The company holds $8 billion in cash while being nearly debt-free. So while the stock is expensive, the growth genuinely supports it, as long as that growth keeps arriving.
The Real Risk Is Not the One Everyone Names
The bears are right about one thing. At this price, there is little room for error. A stock this richly valued can fall on even a slight weakness, and Palantir has fallen sharply before on nothing more than a cautious analyst note. That is a genuine risk, but it is about the price, not the business itself. The company keeps beating its own guidance while its commercial arm continues to accelerate. The danger is paying too much for a great company, not owning a weak one.
Another risk is that Palantir’s growth still rests on a relatively small base of large customers expanding their deployments. That expansion has been powerful, but it also means a slowdown from even a few big accounts would be felt quickly. This, however, is not a sign that anything is breaking, just a reason to watch the numbers closely.
The Bottom Line
Palantir’s valuation guarantees that every earnings report is a high-stakes event. The number that matters is not the headline beat. It is whether the commercial business keeps accelerating and whether management keeps raising its outlook. The bears keep pointing at the price and the fading government story. The more important truth is that Palantir has become a stronger, more commercial, more defensible business than its critics admit.
