Palantir Technologies (PLTR) reached new heights after its third-quarter earnings report.
The report showcased accelerated revenue growth and margin expansion, driven by high demand for its artificial intelligence (AI) software. The Denver-based firm reported a 30% rise in revenue to $725.5 million, surpassing Wall Street estimates of $703.7 million. Palantir’s earnings fueled a 23% jump in its stock price to $50.98, marking a record close since going public in 2020.
The company’s U.S. business was a key driver, with revenue up 44% to $499 million. Within that, commercial revenue surged by 54% and government revenue by 40%, reflecting Palantir's growing influence in the U.S. market.
AI Growth Powers Revenue Surge
Palantir has positioned itself as a leader in the AI space, a move that paid off significantly this quarter. The company's AI platform, launched last year, has generated substantial interest among both government and commercial clients, leading to five consecutive quarters of accelerating revenue growth. CEO Alex Karp attributed the performance to “unrelenting AI demand” and labeled the AI movement a “U.S.-driven revolution.”
The firm’s government sales grew 33% to $408 million, backed by defense spending and increased reliance on Palantir’s software for data fusion and analytics. On the commercial front, U.S. revenue rose 54%, driven by a rise in enterprise-level contracts. Palantir closed 104 deals over $1 million during the quarter and credits its “boot camp” approach, which trains clients to use its software, for contributing to its sales success.
Operating Margins Improve Amid AI Boom
With high demand for its AI solutions, Palantir reported impressive margin improvements, with a GAAP operating margin of 16% and an adjusted operating margin of 38%. This expansion was partly driven by the scalability of its AI products, as companies across industries increasingly seek integrated, AI-powered data solutions. The firm’s adjusted earnings per share increased from $0.07 to $0.10, surpassing expectations of $0.09.
Palantir also revised its revenue guidance, projecting an annual revenue range of $2.805 to $2.809 billion, a slight boost from previous estimates. This upward trend highlights Palantir’s strong position amid growing AI adoption.
Valuation Concerns Temper Bullish Sentiment
While Palantir’s performance has won over many investors, analysts remain cautious. The stock’s valuation is under scrutiny, with some pointing to its forward price-to-earnings ratio of 120 times, a steep premium compared to peers. Gil Luria, analyst at D.A. Davidson, acknowledged the company’s impressive growth but warned that such a valuation could limit long-term gains, maintaining a Neutral rating on the stock. Similarly, Mizuho’s Gregg Moskowitz expressed doubts about Palantir’s high multiple, retaining an Underperform rating despite raising his target price to $37.
Nevertheless, Palantir’s stock has nearly tripled this year, buoyed by its expanding AI offerings and recent addition to the S&P 500, which further cemented its place as a prominent AI player. With robust U.S. demand and an ambitious outlook, Palantir’s continued success may hinge on its ability to sustain growth amid a competitive AI landscape.
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