Palantir 'broke' all valuation models: Citi analyst expects them to grow by another 31%

Citi Research analyst Tyler Radke upgraded data analytics software developer Palantir Technologies from Neutral to Buy and raised his target price for the company's securities from $210 to $235, Barron's writes. That implies an upside of nearly 31% from the closing level on Jan. 12. On the premarket on Tuesday, the securities were down 0.3%.

Palantir Technologies shares are up 135% in 2025, while the S&P 500 index has added about 16%. Such a sharp outperformance of the market has led to the fact that the company's securities are now trading at a high valuation, Barron's points out. At the close of trading on Jan. 9, the forward price-to-earnings ratio for Palantir stock was 177.61 versus 22.49 for the S&P 500, Barron's notes. Palantir's inflated valuation has long raised concerns among analysts who believe that, given the company's fundamental value, its stock is too expensive.

However, Radke believes the current valuation of Palantir is not just "justified", the analyst is confident: the company's securities will continue to grow, writes Barron's. According to Radke, "against the backdrop of rapid growth acceleration and equally impressive margin expansion" Palantir "broke" traditional models of company valuation, including the "Rule of 40" (Rule of 40). Investors typically use this rule to value high-growth technology companies. The Rule of 40 suggests that the sum of a company's revenue growth rate and operating margin should exceed 40%. However, in Palantir's case, Radke says, this rule and other traditional valuation models no longer work because they do not reflect the scale and dynamics of the company's business.

Palantir's growth, Radke believes, will be fueled by 2026 trends related to enterprise AI and the growing popularity of AI agents. The company will also benefit from accelerating growth in defense budgets, Barron's writes. In early January, for example, Palantir's stock had already risen after U.S. President Donald Trump proposed increasing the U.S. military budget for 2027 by 50%, to $1.5 trillion.

In addition, Palantir may receive additional support due to the news on the Golden Dome project, notes Barron's. This is the Trump administration's initiative to create a space-based missile defense system. If the project receives official development and funding, the company could become one of the technology contractors under the program, which would mean new government contracts and an increase in future revenues, the publication notes.

Investors should also pay attention to the dynamics of Palantir's commercial business, Barron's points out, as it shows how successfully the company is scaling outside the public sector. To do this, Palantir uses a measure of remaining deal value (RDV) - the volume of contracts already signed but not yet realized. According to Radke, it is an indicator of where the company can grow revenue in the future by expanding and extending its relationships with corporate clients.

Palantir's U.S. commercial segment RDV has already reached $3.63 billion in the third fiscal quarter of 2025, which was a 199% increase from a year earlier. According to Radke, this confirms his expectation of a "significant expansion of Palantir's commercial business" in 2026 and supports his most optimistic scenario for the company's total revenue growth of up to 80%.

This article was AI-translated and verified by a human editor