Palantir Technologies Inc (NASDAQ:PLTR) has delivered a remarkable 395% return this year, outperforming the entire S&P 500. Despite this strong performance, concerns are growing about the stock's lofty valuation, with a few analysts expressing caution due to potential overbought conditions.

What Happened: Palantir's shares are trading at a price nearly 172 times over its 2025 earnings, according to Benzinga Pro data. At the same time, the average forward price-to-earnings of its peers stand at 59.440 times, implying that PLTR is nearly three times more expensive than its industry's average.

The technical analysis of daily moving averages indicates a strong uptrend.

The stock ended at $82.41 apiece on Thursday. This was above its eight and 50-day simple moving average of $78.50 and $74.57, respectively. According to Benzinga Pro data, its current stock price was also higher than the 50-day moving average of $61.73, and its 200-day moving average of $36.13.

On the other hand, the relative strength index of 71.99 suggests the stock is overbought and could potentially be nearing a price correction.

Why It Matters: According to Benzinga, PLTR has a consensus 'sell' with a price target of $35.58 based on the ratings of 20 analysts.

The highest price target out of all the analysts tracked by Benzinga is $80 issued by UBS with a 'neutral' rating on Dec. 19. UBS is bullish on Palantir's AI-driven growth potential but remains sidelined due to its extremely high valuation. UBS believes the current valuation is unjustified with 49 times revenue and 124 times free cash flow on 2025 estimates. Despite this, Palantir's impressive growth and increasing institutional interest make it a stock to watch for potential future investment opportunities, says UBS.

Wedbush analyst Dan Ives, a strong Palantir bull with a $75 price target issued on Nov. 25 with an 'outperform' rating. He believes AI spending will surge in 2025. He lauds Palantir as "the Messi of AI," emphasizing its leading role in the AI revolution. Ives highlights the expanding use cases for Palantir's products, a growing partner ecosystem, and rising demand for its enterprise AI solutions.

Mizuho raised its price target to $44 while maintaining an 'underperform' rating. This increase reflects broader software sector multiple expansions. Mizuho identifies key trends driving software growth: digital transformation, AI, data analytics, cloud migrations, DevOps, and cybersecurity. While the risk/reward is more balanced, Mizuho sees continued attractiveness in the software sector.

The lowest target price of $7.5 per share, maintaining an 'underperform' from Wolfe Research was adjusted on Aug. 8, 2023. The average price target of $64.67 between UBS, Mizuho, and Baird implies a 20.96% downside for PLTR.

Price Action: Shares were down 0.41% in the premarket to $81.81 apiece, whereas the Invesco QQQ Trust, Series 1 (NASDAQ:QQQ) declined by 0.2% at $528.55.

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