A Closer Look at Palantir’s (PLTR) Valuation Concerns

Legacy Ridge Capital Management, an investment management company, released its Q4 2025 investor letter. A copy of the letter can be downloaded here. The Partnership returned 7% net of a 1% performance fee in 2025. Market volatility led to the Partnership’s weaker-than-expected performance last year. The year started strongly but faced challenges after Liberation Day, despite wisely investing during the market’s lows. The Partnership showed progress from November to mid-December. The letter also noted that a shift in the calendar end date would have improved returns by over 4%, highlighting the unpredictable nature of concentrated value investing. The portfolio is concentrated in 10 names, and the dividend yield is approximately 6%. Please review the Partnership’s top five holdings to gain insights into their key selections for 2025.

In its fourth-quarter 2025 investor letter, Legacy Ridge Capital Management highlighted stocks like Palantir Technologies Inc. (NASDAQ:PLTR). Palantir Technologies Inc. (NASDAQ:PLTR) is a technology company that develops a software platform for investigations and operations. On February 3, 2026, Palantir Technologies Inc. (NASDAQ:PLTR) stock closed at $157.88 per share. Palantir Technologies Inc. (NASDAQ:PLTR) delivered a -13.10% return in the past month, and its shares are up 55.76% over the past twelve months. Palantir Technologies Inc. (NASDAQ:PLTR) has a market capitalization of $376.297 billion.

Legacy Ridge Capital Management stated the following regarding Palantir Technologies Inc. (NASDAQ:PLTR) in its fourth quarter 2025 investor letter:

“At the very least, recent performance for the broader indices is long in the tooth. Most valuations are stretched and some are just bat*hit crazy. We had similar sentiments back in 2019 and wrote about it. Back then the posterchild of the speculative mania was Tesla (TSLA). Now there are dozens of candidates, including TSLA still, but Palantir Technologies Inc. (NASDAQ:PLTR) may be in the pole position. We admit we don’t completely understand what the company does, but it seems super cool. What we do understand is basic arithmetic, and when the CEO goes on CNBC and passionately attacks short sellers, who are just betting the stock is expensive, and he says, “pick something that is not doing a noble task”, not once mentioning valuation during the 10-minute interview, the hair on our neck stands up. We don’t short (we don’t particularly like that math either), but the implied math around Palantir’s valuation is concerning.

PLTR has an enterprise value (EV) of $400B and is expected to have generated $2B of free cash flow (FCF) in 2025. If one assumes that the business grows by its historical topline rate of 30%, buying the whole business today would mean that you wouldn’t see a return of your capital, let alone a return on your capital, for at least 15 years! But once you factor in a discount rate of say 10%, the investor’s payback period moves to 23 years (that’s ~$650B of FCF in year 23—the B is for Billions—but the discounted value is only ~$72B). One could also argue that as a software company, the odds of attaining that level of cash generation appear very steep. Even for a company as ubiquitous as Microsoft, FCF has never exceeded $75B…” (Click here to read the full text)

In another article, we covered Palantir Technologies Inc. (NASDAQ:PLTR) and shared a list of AI stocks analysts are watching. In addition, please check out our hedge fund investor letters Q4 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.