Palantir Technologies (PLTR) reported impressive first-quarter earnings that beat Wall Street’s revenue expectations and included a sharp jump in U.S. commercial contracts.
But despite the strong headline numbers, the stock cratered 13% on Tuesday — its steepest single-day decline in nearly a year — as investors focused instead on faltering international sales and a valuation some analysts say is out of touch with fundamentals.
Revenue for the quarter surged 39% year-over-year to $884 million, easily topping forecasts of $862 million. Adjusted earnings per share hit $0.13, in line with estimates. The company also raised full-year guidance for revenue, operating income, and free cash flow. However, overall revenue grew just 7% sequentially from the previous quarter, and international commercial sales posted a rare contraction — down 5% year-over-year to $142 million, falling well short of the $160 million analysts had expected.
Europe, long seen as a promising growth region for Palantir, continues to underperform. The continent now accounts for just 10% of total revenue, down from 16% a year ago. CEO Alex Karp was blunt on the earnings call: “Europe doesn’t get AI yet.”
Valuation Concerns Overshadow Raised Outlook
Investors appear increasingly wary of Palantir’s valuation, which leaves little room for missteps. Even with Tuesday’s selloff, the stock remains up more than 40% year-to-date and over 400% from a year ago. The company trades at nearly 60 times next year’s expected sales, making it the most expensive stock in the S&P 500 on that basis. Some analysts argue that only flawless execution can justify those metrics.
Jefferies’ Brent Thill maintained his “underperform” rating on the stock, describing the valuation as “irrational,” while noting that expectations around Palantir’s Artificial Intelligence Platform (AIP) may be overly ambitious. Sales and marketing expenses jumped 21% year-over-year, signaling aggressive investment that may take time to translate into profits abroad.
Despite these concerns, Palantir’s domestic business continues to thrive. U.S. commercial revenue rocketed 71% to an annualized run rate of $1 billion, while government revenue climbed 45%. The company booked $810 million in U.S. commercial contract value during the quarter, a record. Palantir closed 139 deals worth $1 million or more, and 31 valued over $10 million. The Rule of 40, a key SaaS metric that combines growth and profitability, stood at 83% — strong, but perhaps not strong enough given the lofty expectations.
Global Headwinds and Political Overhang Weigh on Sentiment
Analysts also pointed to geopolitical and cultural headwinds as part of the international challenge. Gil Luria of D.A. Davidson noted that Europe is “well behind the U.S. and China” in AI infrastructure investment. European buyers have shown increasing preference for homegrown AI technologies, driven by data sovereignty concerns and skepticism over U.S.-based tech firms. Karp himself acknowledged that change in Europe could “take a couple years.”
Palantir’s close alignment with the Trump-era government, and controversial contracts such as its $30 million deal with U.S. Immigration and Customs Enforcement (ICE), may also be dampening demand in parts of the global market. While the company has signed a handful of new government contracts abroad — including a $178 million deal with the U.S. Army to develop AI-powered military trucks — investor sentiment is clouded by the political overhang and sensitivity surrounding its surveillance capabilities.
Looking Ahead
Palantir now expects 2025 revenue between $3.89 billion and $3.90 billion, up from a prior range of $3.75 billion to $3.76 billion. Adjusted free cash flow is forecast at up to $1.723 billion, and the company ended the quarter with $5.4 billion in cash and short-term investments.
Still, the earnings report highlighted the risks facing even high-growth tech firms with strong U.S. tailwinds. As the AI sector matures and hype cools, stocks like Palantir may face tougher scrutiny from investors demanding global traction and sustainable profits — not just domestic momentum and buzzword-laden narratives.
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