Palantir Technologies (PLTR 1.50%) has been on fire over the past few years, driven higher by the accelerating adoption of artificial intelligence (AI) and its legacy government contracts business. Shares of the data mining and AI specialist recently hit a new all-time high and are up 475% over the past year, more than 28 times the 17% gains of the S&P 500. Furthermore, since the dawn of AI in early 2023, the stock has rallied more than 2,330%, with no signs of slowing.

There’s no denying the accelerating financial growth behind those gains, but investors have become increasingly wary about the staying power of the AI revolution and the stock’s lofty valuation. Yet many experts feel it’s still early days for the widespread adoption of AI, with a long runway for growth ahead. This leaves investors with a conundrum. Should they buy Palantir now in anticipation of additional gains or avoid the stock because its pricey valuation could result in steep declines?

Let’s take a look to see what the evidence suggests.

The bottom could drop out, at least temporarily…

While Palantir’s blistering run has been impressive, the gains haven’t all been in a straight line. The uncertainty born of a high valuation, the potential consequences of blanket tariffs, and the ongoing battle with inflation took a toll earlier this year. And the reaction by the stock was as swift as it was brutal and was a harbinger for fair-weather investors.

After hitting an all-time high following its bullish fourth-quarter financial report, Palantir’s stock price plunged nearly 41% between mid-February and early April, illustrating just how volatile it can be.

To be clear, Palantir isn’t for the faint of heart and will likely experience similar wild stock price swings (both up and down) in the future.

What’s fueling Palantir’s epic run?

The AI revolution aside, one of the most significant developments for Palantir has been the company’s consistently improving financial picture.

In Q4 2022, Palantir achieved its first-ever quarter of profitability under Generally Accepted Accounting Principles (GAAP) and never looked back. The company has since generated quarter after quarter of robust growth. The most recent results paint a picture.

In the first quarter, Palantir delivered revenue of $884 million, up 39% year over year and 7% sequentially. The results were driven by the company’s U.S. commercial segment, as revenue soared 71% to $255 million. U.S. government revenue did its part, growing 45% to $373 million.

That’s not all: Palantir’s so-called “Rule of 40” score, which measures the company’s revenue growth in the context of its earnings, is 83%, which signifies a healthy balance between sales growth and profitability. The metric has increased from just 38% less than two years ago and highlights the quality of Palantir’s profits.

To be clear, the biggest growth driver is Palantir’s Artificial Intelligence Platform (AIP). The system is able to aggregate data from multiple siloed software systems — for example, sales, shipping, and inventory — and consolidate it to a single dashboard and apply AI-fueled algorithms. Having all the information in one place helps Palantir’s customers make data-driven decisions, with an assist from AI, which saves time and money.

To help customers over the knowledge hurdle presented by AI, Palantir hosts boot camps. In these intensive sessions, developers are paired with Palantir engineers to address real-world business problems. Many customers have signed seven-figure deals within days or weeks after completing these workshops, which illustrates the value of this approach.

How to approach Palantir stock now

While there’s clear and convincing evidence that Palantir is executing at the highest level, I’d be remiss if I didn’t address the elephant in the room: The stock’s lofty valuation simply can’t be ignored.

The stock is currently selling for 679 times earnings and 156 times sales (no, really!) — which is egregious to be sure. Those frothy multiples have fueled extreme volatility, so Palantir won’t be a good fit for every investor.

Many of Wall Street’s finest are coming down with a fear of heights. Of the 25 analysts that offered an opinion in July, only four rate Palantir a buy or strong buy, 16 rate it a hold, and the remaining five have assigned underperform or sell ratings. It’s no surprise that almost all the bearish calls cite the stock’s pricey valuation.

Some investors might balk at buying such an expensive stock, but the bullish arguments are compelling. Wedbush analyst Dan Ives is Palantir’s biggest cheerleader, suggesting the stock could soar another 178% to a $1 trillion market cap by 2028. To that end, he believes the company could generate double-digit year-over-year growth for much of the next decade. Investors who focus solely on valuation have missed “every transformational tech stock over the past 20 years,” Ives said.

So which is right? Will Palantir stock lose 40% of its value, or will the company reach a trillion-dollar market cap over the next few years? I would respectfully submit that both will likely come to pass. Palantir’s stock can be extraordinarily volatile, and it can climb to new heights. Investors wary of its valuation might consider buying a small stake and adding opportunistically over time. Another time-honored strategy is dollar-cost averaging, which allows investors to build a position over time, buying fewer shares when the stock is expensive and more shares when the price is more reasonable.

I’m a dyed-in-the-wool Palantir bull, and I believe the stock will be much higher 10 years down the road, but I have no doubt it will be a bumpy ride.

Alex Karp is a PhD., technologist, and philosopher. He’s also the CEO of artificial intelligence (AI) software company Palantir Technologies — and he often explains sophisticated and complicated ideas in an extremely digestible format. Recently, Karp sat down for an interview and gave his honest take on AI’s newest darling, a Chinese start-up called DeepSeek.

Since DeepSeek’s arrival a couple of weeks ago, tech stocks have largely fallen off a cliff. In particular, semiconductor stocks have been walloped. Below, I’ll detail some of Karp’s comments and explain why they’re important to understand. Furthermore, I’ll draw on his views to understand how DeepSeek’s emergence could impact the biggest name in the chip realm, Nvidia (NVDA 0.90%).

What did Alex Karp say about DeepSeek?

When OpenAI released ChatGPT in late 2022, many in the technology world suddenly bought into the idea that large language models (LLM) represented some type of breakthrough that would forever change the way businesses interacted. Alex Karp was not one of those people.

Over the last couple of years, the Palantir CEO has consistently said that LLMs, while useful, are commoditized products. During a recent interview, Karp doubled down on this idea as it relates to the DeepSeek advancement. He proclaimed that “it’s much easier than people want to believe to be the second mover.”

He went on to explain that DeepSeek had the luxury of training its AI models on platforms that other LLMs have been using for two years now. In a way, DeepSeek’s impressive capabilities shouldn’t come as too much of a surprise.

How do these ideas impact Nvidia?

Perhaps the biggest component of the DeepSeek storyline is that the company is claiming it built the model for significantly less money than ChatGPT and other well-known LLMs here in the U.S. While it’s been hard to validate the accuracy of these comments, many journalists and leaders in the technology world have pushed back on the idea that something of DeepSeek’s caliber could have been built for a fraction of what U.S. companies have been spending on AI development.

Nevertheless, many in the investment world have entered full panic mode — hitting the sell button on Nvidia like it’s going out of style. The driving force behind Nvidia’s sell-off is that if DeepSeek’s claims are true, demand for Nvidia’s graphics processing units (GPUs) may falter.

It’s unlikely that DeepSeek will suddenly disappear or that its training capabilities will somehow worsen. Karp went on to suggest that, in light of the DeepSeek development, the U.S. should “run harder, run faster” and continue its already serious investments in AI. He doesn’t appear to be the only tech personality touting this idea, either.

During recent earnings calls for Meta Platforms and Microsoft, both companies made it clear that capital expenditure (capex) this year remains a core focus, given high demand for their AI services. To me, DeepSeek appears to be inspiring American technology enterprises to spend even more on their AI roadmaps. Considering both of these “Magnificent Seven” members are customers of Nvidia, I see the continued investment in AI infrastructure as a major tailwind for the chipmaker.

An extremely diluted way of thinking about the DeepSeek situation could be to see the product as yet another LLM — as Karp essentially predicted would happen two years ago. So long as new LLMs emerge and existing platforms continue spending on training and inferencing compute, demand for Nvidia’s processors should remain robust.

I see the ongoing sell-off in Nvidia as something that’s rooted in fear, as opposed to prudent judgement. More importantly, long-term investors have been presented with a rare opportunity to buy the dip in Nvidia — a stock that’s gone almost exclusively upwards for more than two years now. Although the near term could remain a bit volatile, Nvidia’s long-term picture still holds up and could actually become even stronger as U.S. businesses double down on their AI infrastructure.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Meta Platforms, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool has positions in and recommends Meta Platforms, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.