Palantir Technologies Inc. (PLTR.US) has seen its stock fail to rise ahead of a quarterly earnings report for the first time in two years—a signal that investors are increasingly finding fewer reasons to chase the stock higher, which has become one of the most expensive in the S&P 500 index. Since hitting a peak last November, just before Palantir's previous earnings release, the software company's share price has tumbled 29%, with an 18% drop since the start of 2026 alone, ranking it among the index's 15 worst-performing stocks this year. Although this sell-off has compressed Palantir's valuation, its stock still trades at a lofty price-to-earnings ratio of approximately 142 times expected earnings, the third highest in the S&P 500.

Despite the elevated valuation, Wall Street still anticipates Palantir will deliver another quarter of robust growth. Analysts covering the company project its adjusted earnings per share for the fourth quarter of 2025 will surge 63% to 23 cents, with revenue expected to hit $1.3 billion, a 61% year-over-year increase. Mark Giarelli from Morningstar Investment Services commented, "Ultimately, investors are now demanding tangible performance and reasonable valuation—in other words, an attractive investment proposition." He currently rates Palantir as a "Sell" with a price target of $135.

Palantir's earnings release comes at a time of growing skepticism towards mega-cap tech companies, with investors demanding to see returns on the massive investments being made in artificial intelligence (AI) infrastructure. This sentiment has weighed on the broader tech sector, as trader focus shifts away from early winners of the AI trend towards companies expected to benefit from the hundreds of billions of dollars committed by hyperscalers like Amazon (AMZN.US), Google (GOOGL.US), and Microsoft (MSFT.US). Companies perceived as vulnerable to AI disruption, including a host of software stocks, have also seen their shares decline.

Amid these multiple factors, Palantir faces immense pressure to provide an earnings outlook that surpasses expectations, thereby justifying its premium valuation. However, Que Nguyen, Chief Investment Officer at Research Affiliates, believes the pullback in the company's valuation from its late-October highs could also be viewed as a positive signal for the stock. Nguyen stated via email, "This development is reassuring; it suggests the company's progress is gradually aligning with investor expectations, and that investors are not irrationally inflating expectations further."

The recent decline in Palantir's stock price has also created room for a potential rebound. The stock has now fallen below its key 50-day, 100-day, and 200-day moving averages, approaching oversold territory. Jake Behan, Head of Capital Markets at Direxion, noted, "Some minor support levels have begun to appear below the current stock price."

The bar for performance is set exceptionally high. Palantir is scheduled to report earnings after the U.S. market close on Monday, and this report could very well dictate the stock's near-term trajectory. Gil Luria of DA Davidson said, "There's no reason to believe Palantir won't deliver another strong quarter this time; the market dynamics haven't changed that possibility. However, it must be said that the company has already set expectations at an extremely high level, and having delivered outstanding results for several consecutive quarters, surpassing expectations again will be no small feat."

Should Palantir's upcoming report demonstrate growth across several key business segments, it could potentially reignite the stock's upward momentum, reminiscent of last year's 135% surge. Government contracts, which contribute over half of Palantir's revenue, are expected by analysts to show year-over-year growth exceeding 50% this quarter. Meanwhile, investors are particularly focused on the progress of Palantir's commercial business expansion; analysts forecast its U.S. commercial revenue for Q4 2025 will approach $650 million, a massive increase of over 70% compared to the prior year.

Of course, even if the company strikes an optimistic tone, investors might remain cautious about buying Palantir shares due to the overall bearish sentiment surrounding software stocks. The significant post-earnings declines in shares of Microsoft and ServiceNow (NOW.US) last Thursday further dragged down the broader market. Joe Tigay, Portfolio Manager at Equity Armor Investments, which holds Palantir stock, stated, "To avoid the fate of ServiceNow and Microsoft, Palantir not only needs to beat earnings estimates but also provide guidance that meets, if not exceeds, market expectations." He added that if Palantir issues a conservative outlook, the capital markets are unlikely to push its stock price higher.

Direxion's Jake Behan, however, believes that commentary from Palantir's CEO, Alex Karp, during the earnings call could serve as a potential catalyst for the stock. Behan said, "It's well-known that Karp is a vocal cheerleader for his company. Frankly, I'd be surprised if, regardless of the actual numbers, he doesn't manage to attract some buyers."