Palantir: A Most Peculiar Bubble

Now, listen closely, because this is a story about numbers, and numbers, my dears, can be frightfully misleading. It concerns a company called Palantir Technologies (PLTR 3.29%), and a question for anyone foolish enough to invest in it: Of all the companies in the vast and bustling S&P 500, how many have actually made a bit of honest money for their owners? The answer, you see, is shockingly few.

Palantir’s stock, you understand, is a member of a very small, and rather exclusive, club. A club where the entrance fee is a valuation so high, it makes your head spin. Currently, it’s trading around $155 a share, a truly enormous sum, giving it a market capitalization of $370 billion. Last year, they brought in $4.5 billion in revenue, which means shares carry a price-to-sales ratio (P/S) of 87. Eighty-seven! It’s the most expensive stock in the entire S&P 500, a truly preposterous figure.

And it hasn’t always been so. Few companies have ever dared to ask for such a price. According to the clever chaps at WisdomTree, only 231 companies have ever reached a P/S of 25. Those that attempted 100? Well, that sort of thing only happened during the dot-com bubble, a time when grown men and women believed they could make fortunes selling digital pet rocks.

The WisdomTree report also revealed a rather gloomy truth: of those 231 companies boasting a P/S of 25, a mere 21% managed to outperform the market in the following year. Not crush it, mind you, just beat it. The median relative return was a loss of 36%, a truly dreadful outcome. And it gets worse, oh yes, much worse, over three years only 9% came out ahead, and after a full 20 years, a paltry 4%.

If you restrict entry to the truly audacious – those reaching a P/S of 40 – the picture becomes even bleaker. Just 148 companies ever dared to ask such a price, and only a handful managed to outperform the market over the long haul – a measly 3% after 20 years. It’s a bit like trying to win a race against a steamroller, really.

And the peculiar thing is, many of these companies weren’t dreadful businesses. A lot were growing revenue and earnings quite rapidly. They simply couldn’t live up to the fantastical expectations investors had piled upon them. The bar for a company with a P/S of 40 is incredibly high. The bar for a P/S above 80? Well, that’s in the stratosphere, my dears, reserved for companies that believe they can bottle sunshine and sell it for a fortune.

Yet Palantir is clearing that bar right now, and that is genuinely impressive. I’m not arguing with that at all. The company is executing at a level that very few can match. The question is: for how long? It’s all rather like building a magnificent castle on a foundation of quicksand, isn’t it?

I suspect that, despite its current brilliance, Palantir may face some real difficulties scaling up in the not-so-distant future. It has differentiated itself, certainly, but I’m not convinced it can remain “one of a kind” while the Microsofts of the world pour billions into enterprise AI. They’re like enormous, hungry beasts, those Microsofts, and they don’t take kindly to competition.

Palantir’s strongest moat is within the federal government, but it needs its enterprise business to grow to the kind of revenue figures that would justify its valuation. If the competition really heats up – and I suspect it will – management may find its ability to grow at 50%-plus a year impossible to maintain. It’s a bit like trying to outrun a speeding train, really.

The fact is, if Palantir’s stock dropped 50% tomorrow, it would still be among the 150 most expensive companies in the S&P 500 history. That’s how much perfection is already priced in. It’s a rather frightening thought, isn’t it? A bit like a ticking time bomb, waiting for the inevitable.

2026-03-21 22:32

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