Palantir Technologies (NYSE: PLTR) has been one of the most intriguing and controversial stocks in the tech space. Despite its growing list of high-profile partnerships with companies like Amazon, Meta, Microsoft, and Oracle, the company’s business model remains a mystery to many investors. Even renowned valuation expert Aswath Damodaran, often referred to as the “Dean of Valuation,” has openly admitted that he refuses to assess the stock because he simply doesn’t understand what the company does.
Why Damodaran Won’t Value Palantir
Damodaran is known for his deep-dive valuation analyses, yet Palantir remains the only company he won’t evaluate. In a recent statement, he confessed that he has “no idea what they actually do,” citing the classified and proprietary nature of their work. His hesitancy underscores a fundamental investment principle—understanding a company’s business model is crucial before investing.
This raises an important question: if one of the world’s leading valuation experts finds it difficult to grasp Palantir’s operations, should retail investors be concerned about buying into the stock?
Palantir’s Strong Yet Mysterious Business Model
Palantir’s software is used for everything from military intelligence and supply chain management to fraud detection and healthcare optimization. While the company has been securing major government and enterprise contracts, its operations remain opaque, making it difficult for investors to fully grasp how it generates revenue and sustains long-term growth.
Despite this uncertainty, the stock has continued to climb, attracting both institutional and retail investors. However, with a sky-high price-to-sales (P/S) ratio of 96—far exceeding industry peers—questions arise about whether the stock’s valuation is justified or if it’s simply riding a wave of investor enthusiasm.
The Risk of Momentum Investing in Palantir
The Motley Fool reports that Palantir’s stock price surge might be driven more by momentum than fundamentals. This brings to mind the “greater fool theory,” where investors buy a stock with the hope of selling it at a higher price to someone else, rather than basing their decision on intrinsic value.
While Palantir’s AI-driven technology has undeniable potential, the lack of transparency makes it a difficult bet for fundamental investors. Many investors have been drawn to the stock due to its association with artificial intelligence and data analytics—hot sectors in today’s market. But without a clear understanding of its core revenue drivers, investors could be exposing themselves to unnecessary risk.
The Key Takeaway for Investors
Damodaran’s reluctance to value Palantir serves as an important lesson—investors should thoroughly understand a company’s business before committing capital. While high-growth, innovative companies can be tempting, blindly following market hype without a deep understanding of the business model can be risky.
With Palantir, the excitement around AI and government contracts continues to push its stock price higher, but whether that growth is sustainable remains a major question. Investors should tread carefully, conduct their due diligence, and avoid investing in a company they don’t fully understand.
