Is Palantir A Buy After Dropping 20%?

Palantir (NASDAQ:PLTR) has been one of the best AI stocks of the year, nearly tripling in value as its software continues to attract governments and businesses. However, the stock dropped by more than 20% from its all-time high. Some investors have been buying the dip, but does it make sense to follow them? Here’s what you should consider before buying Palantir stock at a discount.

The Commercial Business Segment Is Hot

Palantir got started with government contracts, but its commercial business segment is fueling future growth. The company’s U.S. commercial revenue more than doubled year-over-year in Q3 to $486 million, making up more than 40% of total revenue. Palantir’s revenue growth should continue to accelerate as commercial business sales make up a higher percentage of total sales.

The company uses an annual recurring revenue model to scale growth from existing customers while signing lucrative deals with new customers. Palantir closed 204 deals of at least $1 million, 91 deals of at least $5 million, and 53 deals of at least $10 million. That revenue sticks around each year, and as Palantir continues to secure more contracts, its sales will continue to grow in perpetuity.

Palantir grew its customer base by 45% year-over-year, with businesses being a big factor. As businesses grow, they may have to switch to higher plans to get everything they need out of Palantir. 

Profits Are Also Expanding

Palantir isn’t only delivering high revenue growth, but its profit margins are also expanding. This is a key trait of growth stocks that end up outperforming the stock market in the long run. 

The AI software giant more than tripled its net income year-over-year, resulting in a 40.2% net profit margin.  Surging profit margins have been recent, and it wouldn’t be shocking to see Palantir deliver a 50% net profit margin in at least one of its 2026 quarters. 

If Palantir can maintain its high revenue growth rate while expanding profit margins even more, it can address the only problem with the stock. Investors see its long-term potential and have piled into the stock, but that has resulted in a 419 P/E ratio and a 118 P/S ratio. Both of those valuations are ridiculously high, and most stocks would crash if they had those ratios.

Should You Buy Palantir Stock?

Palantir can maintain those valuations and become more affordable over time if it continues to report exceptional growth. Its ability to sign big deals and grow its U.S. commercial business segment is promising, but any deceleration can create trouble for the stock. Even a 40% year-over-year revenue growth rate would miss the mark, although most corporations would delight their investors with that number.

Palantir’s valuation suggests that it is flying close to the run. However, its incredible business model and annual recurring revenue suggest that it isn’t flying too close to the sun either. Palantir might be able to pull it off and become a $1 trillion company in a few years. Its high growth rates and lofty valuation make Palantir suitable for growth investors.