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Palantir Technologies' (NYSE: PLTR) stock has rallied nearly 70% over the past 12 months. The data-mining and analytics company impressed investors with its accelerating sales growth, expanding margins, and rising profits. The buying frenzy in artificial intelligence (AI) stocks further amplified its gains.

But after that yearlong rally, Palantir's shares look a bit pricey at 182 times forward earnings and 24 times this year's sales. So is it too late to buy this high-flying AI stock?

A brief history of Palantir

Palantir's two platforms, Gotham for government customers and Foundry for commercial customers, both gather data from disparate sources. They then feed that data through AI-powered algorithms to help clients make more informed decisions.

Palantir's government business already serves most of the United States' government agencies, and its platform was reportedly used to hunt down Osama Bin Laden in 2011. Its commercial segment serves big multinational companies like Morgan Stanley, Airbus, United Airlines, and BP.

When Palantir went public via a direct listing in September 2020, its stock didn't blast off from its opening price of $10. Instead, it initially dropped below that level as investors fretted over its high dependence on rigid government contracts, the competitive threats in the enterprise market, and its lack of profits. However, its stock subsequently surged to a record high of $39 on Jan. 27, 2021, during the buying frenzy in growth and meme stocks.

At the time, growth-oriented investors were impressed by Palantir's goal of increasing its annual revenue by at least 30% through 2025. Its revenue rose 41% in 2021, but climbed just 24% in 2022 and 17% in 2023.

That deceleration, which it mainly blamed on lumpy government contracts and macro headwinds for its commercial customers, caused its stock to sink to an all-time low of $6 per share on Dec. 27, 2022.

Why are the bulls excited about Palantir again?

Investors who bought Palantir at the end of 2022 have already notched a 355% gain over the past 18 months. The bulls rushed back into Palantir for two simple reasons: Its revenue growth was accelerating and its profits were soaring.

Data source: Palantir. YOY = year over year.

Palantir's government business perked up again as it secured new contracts, while the rapid growth of its U.S. commercial business offset its slower international expansion. Its rollout of new AI tools over the past year likely generated more tailwinds.

As Palantir's revenue growth accelerated, it reined in its operating expenses and stock-based compensation to boost its generally accepted accounting principles (GAAP) profits. That's why it's stayed profitable on a GAAP basis for the past six consecutive quarters, and it expects to stay in the black for the foreseeable future.

But can Palantir justify its premium valuation?

In 2024, Palantir expects its revenue to climb 20%-21%. From 2023 to 2026, analysts forecast its revenue to increase at a compound annual growth rate (CAGR) of 20% as its GAAP EPS rises at a CAGR of 56%. If Palantir's valuation holds steady and it matches Wall Street's expectations, its stock could more than double by 2026.

However, I think it could be tough for Palantir to maintain a double-digit price-to-sales ratio and a triple-digit price-to-earnings ratio because it faces some unpredictable challenges. First, more U.S. government agencies could internally develop their own data-mining programs to replace Gotham. U.S. Immigration and Customs Enforcement (ICE) has already been testing out its own platform called RAVEn, and other government agencies could follow its lead in the future. If that happens, Palantir might need to reconsider its goal of becoming the "default operating system of data across the U.S. government."

Second, Palantir still faces intense competition from other data-mining companies like Salesforce and Alteryx in the crowded commercial analytics market. Cloud infrastructure giants like Amazon Web Services (AWS) and Microsoft Azure could also roll out similar tools.

Is it too late to buy Palantir's stock?

Palantir continues to grow as it leverages its battle-hardened reputation to expand into the enterprise market. However, its near-term valuation has clearly been inflated by the bullish stampede toward most AI-related stocks.

Palantir should certainly benefit from the secular expansion of the AI market, but it shouldn't be casually tossed into the same basket as higher-growth AI plays like Nvidia and Super Micro Computer. So speaking as an investor who previously bought this stock at about $10 and sold it in the low $30s, I think it's smarter to avoid Palantir for now and focus on more reasonably valued growth stocks in this volatile market.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon, BP, Microsoft, Nvidia, Palantir Technologies, and Salesforce. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.