Palantir Technologies Inc. has captured the attention of investors with its cutting-edge AI and data analytics solutions, particularly in government and enterprise sectors. But is its current stock price of $132.06 justified? To answer this, I conducted an in-depth intrinsic value analysis using two discounted cash flow (DCF) methodologies: the Buffett Valuation Method and the McGrew Valuation Method. Leveraging five years of financial data from Palantir’s quarterly reports, I calculated intrinsic values, applied a 25% margin of safety, and assessed whether PLTR is a buy, hold, or sell. The results reveal a stark contrast between the two models, with the McGrew Valuation yielding a significantly higher estimate due to its growth assumptions. Here’s a detailed breakdown of the analysis, including methodology, results, and insights for investors.
Methodology Overview
Both valuation methods estimate intrinsic value by projecting future Free Cash Flows (FCF), discounting them to present value, and dividing by shares outstanding. The Buffett Valuation Method, inspired by Warren Buffett’s approach, uses a conservative growth rate, while the McGrew Valuation Method dynamically adjusts growth based on historical performance, making it more suitable for high-growth companies like Palantir. Key inputs include:
- Free Cash Flow (FCF): Sourced from Palantir’s quarterly cash flow statements (2020–2024).
- Shares Outstanding: 2,359,663,165 as of March 31, 2025, from the balance sheet.
- Last Closing Price: $132.06, assumed to be the most recent trading day’s price (June 9, 2025).
- Discount Rate: 8% (4% Treasury yield + 4% risk premium).
- Perpetual Growth Rate: 2.5% for terminal value calculations.
I used five years of FCF data to calculate the 5-Year FCF Compound Annual Growth Rate (CAGR), as the methodology prefers longer periods when available. All calculations were performed with precision, and results were cross-checked for consistency.
Data Collection
Free Cash Flow
From the provided PLTR_quarterly_cash-flow.csv, I compiled annual FCF for 2020–2024:
- 2024 (TTM, ending 03/31/2025): $1,318,395,000
- 2023: $641,363,000 (sum of quarterly FCF: $126,915,000 + $296,312,000 + $131,878,000 + $86,258,000)
- 2022: $346,069,000 ($182,621,000 + $73,845,000 + $32,630,000 + $56,973,000)
- 2021: $225,313,000 ($20,262,000 + $87,583,000 + $95,415,000 + $22,053,000)
- 2020: $97,529,000 ($116,173,000 + $-23,049,000 + $-53,520,000 + $57,925,000)
The 2024 TTM FCF ($1,318,395,000) serves as the starting point for projections.
5-Year FCF CAGR
The 5-Year FCF CAGR is calculated as:
CAGR=(Ending FCFBeginning FCF)1n−1=(1,318,395,00097,529,000)14−1≈68.37%\text{CAGR} = \left( \frac{\text{Ending FCF}}{\text{Beginning FCF}} \right)^{\frac{1}{n}} – 1 = \left( \frac{1,318,395,000}{97,529,000} \right)^{\frac{1}{4}} – 1 \approx 68.37\%\text{CAGR} = \left( \frac{\text{Ending FCF}}{\text{Beginning FCF}} \right)^{\frac{1}{n}} - 1 = \left( \frac{1,318,395,000}{97,529,000} \right)^{\frac{1}{4}} - 1 \approx 68.37\%
With a CAGR of 68.37% (>10%), Palantir is classified as a growth stock, influencing growth rate assumptions.
Buffett Valuation Method
The Buffett method assumes a conservative 10% FCF growth rate for growth stocks over 10 years, followed by a terminal value with a 2.5% perpetual growth rate.
- FCF Projections:
- Year 1: $1,318,395,000 × 1.10 = $1,450,234,500
- Year 10: $3,419,577,091
- Terminal Value:\text{Terminal Value} = \frac{3,419,577,091 \times 1.025}{0.08 – 0.025} \approx $63,728,482,145
- Present Value (PV):
- Year 1 PV: $1,450,234,500 ÷ 1.08^1 = $1,342,809,722
- Year 10 PV: $3,419,577,091 ÷ 1.08^10 = $1,608,843,742
- Terminal Value PV: $63,728,482,145 ÷ 1.08^10 = $29,990,967,885
- Total Intrinsic Value: $43,660,450,000 (sum of PVs).
- Intrinsic Value per Share:\frac{43,660,450,000}{2,359,663,165} \approx $18.50
- Price with 25% Margin of Safety: $18.50 × 0.75 = $13.88
McGrew Valuation Method
The McGrew method uses a dynamic growth schedule for growth stocks, starting with the 5-Year FCF CAGR (68.37%) and declining linearly to 10% by Year 7, then holding at 10% through Year 10.
- Growth Schedule:
- Year 1: 68.37%
- Year 2: 58.64% (68.37% – 9.73%)
- Year 7: 10%
- Years 8–10: 10%
- FCF Projections:
- Year 1: $1,318,395,000 × 1.6837 = $2,219,779,469
- Year 10: $16,553,451,611
- Terminal Value:\frac{16,553,451,611 \times 1.025}{0.055} \approx $308,496,143,655
- Present Value:
- Year 1 PV: $2,055,351,360
- Year 10 PV: $7,724,717,346
- Terminal Value PV: $145,178,999,413
- Total Intrinsic Value: $203,377,451,108
- Intrinsic Value per Share:\frac{203,377,451,108}{2,359,663,165} \approx $86.20
- Price with 25% Margin of Safety: $86.20 × 0.75 = $64.65
Why McGrew Valuation is Higher
The McGrew Valuation yields a much higher intrinsic value ($86.20 vs. $18.50) because it incorporates Palantir’s exceptional historical FCF growth. The 68.37% 5-Year FCF CAGR reflects Palantir’s transition from $97.5M in 2020 to $1.32B in 2024, driven by expanding AI contracts and operational efficiency. McGrew starts projections at this high rate, gradually declining to 10% by Year 7, capturing Palantir’s growth trajectory more accurately for a tech firm. In contrast, the Buffett method caps growth at 10%, which may be overly conservative for a company with Palantir’s momentum, potentially undervaluing its future cash flows.
Valuation Status
Using the closing price of $132.06, I assessed PLTR’s valuation status:
- Buffett Valuation:
- Intrinsic Value: $18.50
- 36% above: $25.16
- Status: Overvalued ($132.06 > $25.16)
- McGrew Valuation:
- Intrinsic Value: $86.20
- 36% above: $117.23
- Status: Overvalued ($132.06 > $117.23)
Table of Results
| Stock Ticker | Valuation Method | Intrinsic Value per Share | Price with 25% Margin of Safety | Last Closing Price | Valuation Status |
|---|---|---|---|---|---|
| PLTR | Buffett Valuation | $18.50 | $13.88 | $132.06 | Overvalued |
| PLTR | McGrew Valuation | $86.20 | $64.65 | $132.06 | Overvalued |
Insights and Limitations
Palantir’s high stock price suggests market optimism about its AI leadership, government contracts, and commercial growth. However, both models indicate overvaluation, with the McGrew estimate being closer to the current price but still below it. Investors should consider:
- Growth Assumptions: The 68.37% CAGR may overstate future growth if Palantir’s expansion slows. The Buffett method’s 10% growth may be too conservative, missing PLTR’s potential.
- Data Reliability: Using TTM FCF for 2024 could include seasonal factors. The provided $132.06 price wasn’t cross-checked with sources like Yahoo Finance due to the document’s instructions.
- Dilution Risk: Assuming constant shares (2.36B) ignores potential future dilution, which could lower intrinsic value per share.
- Market Volatility: PLTR’s price is volatile, and $132.06 may reflect short-term sentiment rather than fundamentals.
Palantir’s intrinsic value varies significantly between the Buffett ($18.50) and McGrew ($86.20) models, with McGrew’s higher estimate reflecting its robust FCF growth. Yet, at $132.06, PLTR appears overvalued in both scenarios. Investors should weigh qualitative factors—like Palantir’s AI dominance and strategic contracts—against this premium. Further analysis, including sensitivity tests or updated price data, could refine these insights. For now, caution is warranted, but PLTR’s long-term potential remains compelling.
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