Palantir’s Skyrocketing Stock May Be Headed for a Historic Fall

$Palantir Technologies Inc.(PLTR)$

When Great Stories Meet Greater Valuations

Palantir Technologies has morphed from a polarizing defense-and-data contractor into 2025’s poster child for AI-fueled software exuberance. The company’s second-quarter print was objectively strong—revenue accelerated, margins expanded, free cash flow surged, and guidance stepped higher. But the stock’s rally has been even stronger. Palantir is among the year’s top performers in the major indices, and that outperformance has invited a new wave of skeptics who argue that price has sprinted far ahead of fundamentals. Notably, famed short-seller Andrew Left of Citron Research has publicly disclosed a bearish position, warning that the stock’s current valuation leaves room for more than 70% downside.

This article examines the momentum behind Palantir’s run, the quality of the underlying business progress, and the risk that history repeats itself: periods of peak narrative power and parabolic price action often resolve through abrupt mean reversion. The goal is not to diminish Palantir’s technology or execution—it is to separate an excellent business from an extraordinary valuation.

Performance Overview and Market Feedback

Palantir’s advance in 2025 has been stunning by any objective measure. Year-to-date, shares have surged well into triple digits, making Palantir one of the strongest large-cap performers and a top gainer on the S&P 500. That strength has been reinforced by a market eager to reward AI beneficiaries and by quarterly numbers that exceeded expectations. Yet as momentum names began to stall in mid-August trade, Palantir found itself at the center of a sharper debate: is this the next durable AI compounder—or the next momentum stock priced for perfection?

Feedback from the broader market has been bifurcated. On one side, bulls point to accelerating U.S. commercial growth, rising operating leverage, an expanding customer base, and the traction of the company’s Artificial Intelligence Platform (AIP). On the other, skeptics highlight extreme valuation markers and the historical tendency for euphoric software multiples to compress once growth normalizes. The conversation turned louder after Citron called out Palantir’s “absurd” valuation and suggested downside of two-thirds or more even under generous assumptions.

The Momentum-Correction Setup

Momentum leadership often breaks first at the names with the richest multiples. If macro conditions wobble, liquidity tightens, or AI enthusiasm cools, stocks that have been “bought for the chart” rather than the cash flows tend to re-rate the fastest. History rarely repeats verbatim, but it often rhymes—prior software cycles have seen premium franchises give back 30%–60% in months without any change to long-term narratives. Palantir now sits squarely in that zone of risk, not because its business is deteriorating, but because its price implies near-flawless execution at scale for years.

Current Fundamentals and FOMO

Fundamentally, Palantir just delivered one of its strongest quarters as a public company. Q2 2025 revenue grew 48% year over year to roughly $1.0 billion, with U.S. revenue up 68% and U.S. commercial revenue up 93%—a testament to how quickly AIP workshops are converting into seven- and eight-figure deals. GAAP operating margin reached 27%, adjusted operating margin climbed to 46%, and GAAP EPS printed $0.13 (adjusted EPS $0.16). Free cash flow and cash from operations were robust, and the balance sheet ended the quarter with approximately $6 billion in cash and no debt.

Management also tightened and raised the outlook: the company now guides 2025 revenue to about $4.14–$4.15 billion and signaled confidence that momentum can carry into the back half of the year. In short, the operational scorecard is excellent.

Why FOMO Is Doing the Heavy Lifting

In markets, what’s true can matter less than what’s priced. Palantir’s fundamentals are improving quickly, but the stock’s trajectory suggests a large portion of today’s buyers are motivated as much by fear of missing out as by discounted cash-flow math. Retail enthusiasm, social-media-fueled narratives, and media debates that frame the stock as a battleground name can all amplify this effect. Even bullish commentators have begun acknowledging how sentiment—not just fundamentals—is powering the trade. When FOMO becomes the marginal buyer, the same psychology can accelerate the downside when sentiment flips.

Financial Highlights and Valuation

Revenue and Mix. Palantir’s revenue base cleared the $1 billion quarterly mark, with both government and commercial segments contributing. The notable shift is the acceleration in U.S. commercial—a strategically important cohort because it demonstrates that Palantir’s AI-native workflows are moving beyond pilots into scaled deployments. Customer counts and remaining deal value also moved higher, suggesting a durable pipeline.

Margins and Cash. Adjusted operating margin reached the mid-40s, and the company generated substantial adjusted free cash flow, with the quarter’s reconciliation showing a strong cash-from-operations figure. The balance sheet’s cash pile, paired with zero debt, gives Palantir strategic flexibility to invest through cycles and withstand drawdowns.

Guidance. Management raised full-year revenue guidance into the low $4.1 billions and indicated Q3 revenue growth around the 50% range. The “Rule of 40” score—revenue growth plus adjusted operating margin—was highlighted near the mid-90s, an elite print for large software.

The Valuation Dislocation

Here is the crux of the bear argument: even after acknowledging these excellent prints, Palantir’s valuation screens at levels that, historically, have proven fragile. Recent analyses from mainstream outlets highlighted forward multiples that are outliers even within AI leadership. In the days surrounding Q2, coverage noted Palantir trading at well over 100× sales and hundreds of times forward earnings—figures that imply a multi-year continuation of hypergrowth with sustained elite margins. That’s not impossible, but the burden of proof is immense.

There is nothing inherently “wrong” with a premium multiple for a premium asset, but markets eventually re-center around cash generation and competitive economics. If revenue growth decelerates as the law of large numbers intrudes—or if operating leverage matures earlier than bulls expect—multiples tend to compress. Even a re-rating to merely “very expensive” from “historic” can translate into material share-price downside, without any change to the long-term story.

Citron Shorts Palantir—And Why the 70% Call Resonates

Citron Research’s Andrew Left reemerged with a highly public short thesis on Palantir, framing the stock as a quintessential example of AI euphoria overwhelming valuation discipline. Left’s commentary bluntly argues that the multiple structure is unsustainable and that precedent suggests downside of two-thirds or more even if Palantir remains one of the best-run software businesses of the era. While some of the most aggressive point estimates vary across outlets, the common thread is clear: based on current revenue and margin trajectories, today’s price implies expectations that rival, or exceed, the most celebrated runs of the last cycle.

Why does the 70% figure resonate with veteran investors? Because it aligns with what history has repeatedly demonstrated for narrative leaders at valuation extremes. When leadership stocks trade at triple-digit EV/sales and several-hundred-times forward earnings, it creates a narrow path where the company must thread the needle—sustain 40%–50% growth, maintain best-in-class margins, fend off competition, and avoid macro hiccups—all while compounding at scale. Any wobble, and the price can “catch down” to the business before the business catches up to the price.

The Competitive and Narrative Overhangs

Citron also flagged the growing competitive field in AI infrastructure and data platforms, including potential pressure as high-profile private peers pursue the public markets. Whether or not those entrants directly overlap Palantir’s sweet spot, the optics of more investable AI names can siphon incremental flows and compress scarcity premiums. For momentum stocks, multiple is as much a function of capital flows and perceived uniqueness as it is of discounted cash generation.

Technical Context: Late-Stage Momentum Traits

While this is fundamentally a valuation debate, technical behavior matters when flows, options positioning, and narrative are in the driver’s seat. Palantir’s chart—characterized by vertical advances, shallow consolidations, and frequent gap-ups around catalysts—has the hallmarks of late-stage momentum. In such regimes, small shifts in positioning (e.g., a modest pickup in profit-taking or a cooling of call buying) can quickly cascade into larger moves. Momentum trends rarely die quietly; they often end with range expansion, then air pockets.

A simple risk framework is useful here: when a stock becomes “consensus momentum,” bad news doesn’t need to arrive for the price to fall—good news merely needs to be “less good than expected.” That is especially true when management has already raised guidance and the Street has extrapolated those raises well into outer years.

What the Bulls Get Right—and Where the Risk Lies

Bulls are not wrong about Palantir’s product-market fit. The company’s operating system for data, decision-making, and AI-native workflows is demonstrably sticky with large customers. AIP, which effectively accelerates the path from ideation to productionized AI applications, appears to be moving through enterprises faster than prior platform introductions. And the company’s government heritage gives it a defensible moat in mission-critical deployments. These are structural advantages that do not vanish because the stock re-rates.

But the near-term risk is that Palantir is pricing an immaculate adoption curve and persistently elite margins without interruption. Even the best software franchises encounter digestion phases—procurement cycles lengthen, budgets shift, and competition undercuts pricing to win marquee logos. In those phases, expensive stocks tend to “normalize” first and ask questions later.

Scenario Analysis: How a Re-Rating Could Unfold

1. Soft Landing / “Digest & Go” (Bullish-Base Case). Growth settles from ~50% into the 30%–40% range over the next year, adjusted operating margin sustains in the 40s, and free cash flow remains strong. In this case, the multiple might compress but stays premium. The stock consolidates rather than collapses, ultimately growing into a still-rich valuation as revenues compound.

2. Multiple Compression Without Business Damage (Risk Case). Growth cools faster than expected to the 20s, or the market simply broadens out and demands more reasonable EV/sales for even elite AI software. A rerate from “historic” to “very expensive” might imply 40%–60% drawdown with fundamentals intact.

3. Narrative Break (Bear Case). A combination of macro slowdown, procurement delays, or competitive pressure trims growth and dents the margin arc. This is the regime where Citron’s 70% downside call becomes plausible—not because the business is broken, but because the market stops paying a once-in-a-generation multiple for a still-excellent but more pedestrian growth profile.

Risk Factors to the Bear View

• Continued Hypergrowth and Share Gains. If AIP continues converting workshops to production at a blistering pace, Palantir could outgrow even aggressive models, making today’s multiples look less stretched in hindsight.

• Operating Leverage Surprise. Sustained mid-40s adjusted operating margins with rising GAAP margins could warrant a structural premium for longer.

• Scarcity Premium Persists. If public-market alternatives in Palantir’s niche remain limited, investors could keep paying “royalty rates” for growth, elongating the valuation plateau.

Even acknowledging these offsets, the asymmetry near current levels appears skewed to the downside because expectations are already heroic.

Verdict and Entry Price Zone

Verdict: Hold/Trim for risk control; avoid new purchases at current levels unless your mandate explicitly embraces momentum risk. Palantir is a high-quality franchise with accelerating growth, robust cash generation, and a war chest to invest through the cycle. But the stock’s present valuation sits in historically precarious territory for large-cap software, making it vulnerable to a sharp re-rating even if execution remains strong.

Entry Price Zone: For long-term, fundamentals-first investors, a more attractive accumulation band would likely emerge 50%–60% below recent highs—roughly a zone that corresponds to a deep retracement of the 2025 advance and a material step-down in EV/sales toward (still premium) but less extreme territory. In practical terms, that implies a staged buying plan beginning around the ~40% drawdown mark and building positions more assertively if shares pull back 50%–60%. This framework recognizes that (i) cycles of software multiple compression can be swift, (ii) Palantir’s business remains strong enough to deserve a premium, and (iii) price discipline matters most when narratives are hottest.

Investors employing dollar-cost averaging could scale entries across that zone rather than attempting precision timing. Momentum- or tactical-focused traders, by contrast, may simply defer until the chart re-bases and leadership rotates back into the name with healthier breadth.

Conclusion: A World-Class Franchise Can Still Be a Poor Near-Term Bet

Palantir’s second quarter showcased a company firing on many cylinders: surging U.S. commercial demand, expanding operating leverage, best-in-class Rule of 40 metrics, and a balance sheet designed for durability. None of that is in dispute. What is in dispute is the price investors are being asked to pay for that excellence. When mainstream coverage highlights valuation multiples that sit well beyond prior-cycle leaders—and when high-profile skeptics argue for 60%–70% downside—it’s a signal that expectations may have outstripped even robust reality.

If history is a guide, parabolic advances built on impeccable narratives often give back a large share of their gains before resuming more sustainable climbs. That doesn’t make Palantir a broken story; it makes it a great company priced for perfection in a market that rarely offers it for long. For investors who prioritize risk-adjusted returns over headline-chasing, patience and price discipline are likely to be rewarded.

Key Takeaways

• Execution Outstanding, Price More So. Q2 results and FY guidance were excellent, but the stock’s valuation embeds near-flawless multiyear outcomes.

• Momentum Cuts Both Ways. FOMO has been a powerful tailwind; it can become a headwind when leadership stalls.

• Citron’s 70% Downside Is Not Outlandish—It’s Historical. Whether or not one agrees with the magnitude, the logic follows prior cycles in which premium software leaders re-rated dramatically without fundamental collapse.

• Verdict: Hold/Trim. For new money, target entries 40%–60% below recent highs, scaled in tranches, to better align price with even optimistic cash-flow paths.

Bottom line: Palantir is a rare asset with elite metrics and real AI traction. It may also be the clearest example today of a world-class franchise priced as if the future has already arrived. When a great business meets an extraordinary valuation, prudence—not panic, not euphoria—is the edge.