• The average analyst's stock-price target implies Palantir's stock is well overpriced, even though the company stands to benefit from defense and intelligence offerings

The conflict in the Middle East has put the importance of technological advancements in warfare on display, whether they are used to deter risk or strike a target with precision. And the message has been received: Earlier this month, the U.S. Army swore in executives from Palantir Technologies Inc., Meta Platforms Inc. and OpenAI as lieutenant colonels.

From an investor perspective, that could be translated as a bullish signal for Palantir's stock (PLTR). The company is a leader in sophisticated artificial-intelligence technology that's used by the defense sector, intelligence agencies and law enforcement. Its software offerings, through platforms like Gotham, can collect data from multimedia sources, share information between agencies, find targets and even anticipate possible outcomes in order to propose responses on the battlefield.

For those capabilities, the company has been awarded a few hefty government contracts. One, for $795 million, was awarded in May by the Department of Defense for the Maven Smart System, a battlefield-analysis software. That's on top of the $480 million Palantir was previously awarded for the system's prototype, for a total of almost $1.3 billion.

That's a lot of cash and could make a strong case for buying Palantir's stock. But Wall Street thinks overwise.

Gil Luria, head of technology research at D.A. Davidson, said the stock's price has been largely pushed up by optimistic retail investors who are riding on recent geopolitical headlines. On the other hand, analysts don't believe the company's financials and its business model justify the stock trading near $140, where it was on Monday.

Despite Palantir's growing business, the average stock-price target of the 28 analysts surveyed by FactSet who cover Palantir is $107, or roughly 23% below current levels.

Simply put, Wall Street believes the stock is overpriced.

It's important to note that one of the company's biggest strengths - its relationship with Washington, D.C. - is also its biggest risk. Since much of Palantir's business comes from government, it lacks a diversified customer base.

About 55% of its sales in 2025 is estimated to come from government contracts, according to data from FactSet. That means any shifts in policy or budget restrictions could greatly impact its revenue.

However, that concern has been known on Wall Street for some time. What might be a fresher way to put things into perspective is to remind investors how expensive the stock appears to be relative to that risk and relative to shares of other software companies. One way investors look at that is by comparing key ratios of similar companies to see how they stack up against one another.

Consider Palantir's enterprise value to its estimated revenue, a ratio measuring a company's total value in equity and debt minus cash and cash equivalents, divided by the average analyst estimate for revenue over the next 12 months. The ratio is often used to compare companies that are growing.

For Palantir, the EV/NTM revenue ratio sits at about 78, according to data from FactSet. Network services and cybersecurity provider CloudFlare Inc. $(NET.UK)$, meanwhile, has an EV/NTM revenue ratio of about 26, and cybersecurity company CrowdStrike Holdings, Inc. $(CRWD)$ has an EV/NTM revenue ratio of 22.

These three companies are expected to grow their revenues into 2026 at similar rates of between 22% and 28%, which suggests their EV/NTM revenue ratios should also be relatively similar, Luria said.

Palantir's much higher ratio suggests that the company will need to continue to maintain that high revenue growth for three times longer than CloudFlare and CrowdStrike, he added.

The table below shows a list of growing software companies along with their EV/NTM revenue ratios. The grouping is based on the top software-as-a-service and cloud companies compiled by Jamin Ball, a partner at Altimeter Capital. The data were pulled from FactSet.