Shares of Palantir (PLTR) dropped more than 5% on Monday as the stock reacted to a new rating from Wall Street. Analysts from Morgan Stanley re-initiated coverage of Palantir with a “sell” recommendation.

The sale comes as a Morgan Stanley analyst cautioned that Palantir is “trading too far ahead” of its intrinsic value as it looks to take advantage of the generative AI boom.

Palantir Technologies was the best-performing member of the S&P 500 ( ^GSPC -1.11%) in 2024. Its share price surged 340% last year as growing demand for its artificial intelligence platform excited investors. Palantir has grown into a $181.9 billion business, but I think semiconductor comany Arm Holdings ( ARM -2.06%) can top that figure in 2025.

Palantir Technologies Inc. PLTR stock had an incredible 2024. The company was not only added to the S&P 500 in 2024, but its 340% return made it the index's best-performing stock. The inclusion boosted demand for its shares,

Inclusion in the Nasdaq 100 is a great achievement for the company, but it's the hype from retail investors that will likely determine the stock's path in 2025. Its fundamentals aren't strong enough to support this kind of valuation on their own, which is why I would avoid the stock, regardless of how hot it may appear to be.