Palantir Stock Is on a Crash Course With History That Will Likely Be Very Costly for Investors

• Palantir Technologies was the best-performing stock in the S&P 500 last year, and the company is once again leading the benchmark index this year.

• Palantir is a recognized leader in artificial intelligence (AI) and machine learning platforms, a market forecast to grow at 41% annually through 2028.

• Palantir traded at 109 times sales in June, making its stock three times more expensive than the next closest company in the S&P 500.

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Palantir Technologies (NASDAQ: PLTR) has created astounding wealth for shareholders in a very short period. It was the best-performing member of the S&P 500 (SNPINDEX: ^GSPC) last year, and the company is leading the index higher again this year. In total, Palantir stock has returned 695% since January 2024 and 2,000% since January 2023.

However, Palantir is also the most expensive stock in the S&P 500, as measured by price-to-sales ratio. In fact, it is one of the most expensive software stocks in recent history, and other every other software stock that had a similar valuation in the last two decades eventually crashed.

Here's what investors should know.

ChatGPT showed that artificial intelligence (AI) systems could not only generate media content and engage in conversation, but also reason through problems and give concise answers to complex questions. It became the fastest-growing consumer application in history after its launch in late 2022, and businesses have since been racing to infuse their products with generative AI.

Palantir was ideally positioned to capitalize on that trend. The company already developed analytics solutions, so introducing an adjacent artificial intelligence platform that let users engage data conversationally was a natural next step. Palantir introduced such a product in 2023. Its Artificial Intelligence Platform (AIP) is a large language model orchestration tool that lets businesses apply generative AI to their operations.

The company says it is uniquely positioned to meet demand for AI because it has spent years developing its ontology-based software. To elaborate, an ontology is a framework that connects digital data to real-world assets, creating a feedback loop that lets users identify nuanced insights that continuously improve to support better decision-making over time.

AIP lets businesses interact with ontology data in natural language, making it easy to apply generative AI to analytics workflows. Palantir CTO Ryan Taylor said last year, "Our unique capability lies in moving from prototype to production." In other words, Palantir sees its software as better suited than competing products to helping businesses build AI tools.