Palantir's Revenue Tops $2 Billion for First Time, But Shares Slide on Valuation Worries

Palantir Technologies reported quarterly revenue above $2 billion for the first time on Monday, with sales nearly doubling from a year earlier as demand for its artificial-intelligence software from both corporations and governments accelerated. The stock fell anyway, as investors weighed a cooling pace of new bookings against a share price that already reflects years of rapid growth.

The Denver-based data-analytics company said third-quarter revenue reached $2.313 billion, up 96 percent from a year earlier and 20 percent from the second quarter, according to its quarterly report filed with the Securities and Exchange Commission. Adjusted earnings came to 44 cents a share. Both figures beat Wall Street's consensus estimates of roughly $2.18 billion in revenue and 41 cents a share.

For the first time in the company's 22-year history, Palantir's United States commercial revenue outpaced revenue from the U.S. government. Commercial sales in the U.S. climbed 148 percent year over year to $984 million, while U.S. government revenue rose 96 percent to $953 million. Total U.S. revenue was $1.937 billion, up 119 percent.

Shares fall despite the beat

Palantir shares declined roughly 3 percent in the session after the results were released and continued lower in after-hours and premarket trading, according to trading data compiled by Kucoin. The drop came even as the company raised its full-year revenue guidance to between $8.530 billion and $8.534 billion, well above the roughly $8.2 billion analysts had expected, and lifted its outlook for adjusted free cash flow to $4.8 billion to $5.0 billion for the year.

The sell-off reflected two concerns that surfaced in the numbers beneath the headline growth rate. Total contract value for new deals signed in the quarter came to $2.918 billion, up 6 percent from a year earlier but down from the prior quarter, a slowdown analysts linked chiefly to fewer large U.S. commercial contracts being signed in the period even as existing commercial accounts expanded rapidly. Gross margin also slipped to 83.4 percent from 84.7 percent in the second quarter, and a roughly $118 million swing in other income, from a gain to a loss, weighed on net income growth. Palantir's stock had also been swept up in a broader pullback across AI-linked technology names in the days before the report, as investors across the sector reassessed how much heavy capital spending on AI infrastructure by companies such as Alphabet and Amazon will ultimately pay off. Jefferies analysts, who have long been skeptical of the stock, said in a note cited by a GuruFocus report republished on TradingView that the quarter's financial performance was solid but that the risk-reward at such a valuation remained unfavorable. Analysts at Morgan Stanley took a more constructive view, pointing to what they called the company's fastest-ever sequential revenue growth as evidence its government and commercial businesses are both still accelerating.

Government and commercial momentum

Palantir's Artificial Intelligence Platform, or AIP, has become the centerpiece of its pitch to both corporate customers and government agencies, letting them deploy large language models against their own data under conditions the company says meet security and compliance requirements that off-the-shelf consumer AI tools cannot. The company closed 212 deals worth at least $1 million in the quarter, including 64 worth at least $10 million, according to its earnings release filed with the SEC. U.S. commercial remaining deal value, a measure of contracted revenue still to be recognized, rose 79 percent from a year earlier to $6.517 billion.

Chief executive Alex Karp, who co-founded the company in 2003 with backing from Peter Thiel and seed funding tied to the CIA's venture arm, framed the results around what he called a widening split between institutions that have adopted artificial intelligence at scale and those that have not. "The Sovereign AI movement is imposing the most dramatic dichotomy between haves and have nots," Karp said in the earnings release, adding that the company's U.S. commercial revenue surpassing its government revenue for the first time marked a milestone for a business long associated primarily with defense and intelligence contracts.

"The Sovereign AI movement is imposing the most dramatic dichotomy between haves and have nots," Palantir chief executive Alex Karp said in the company's earnings release.

GAAP net income attributable to common stockholders was $1.128 billion, a 49 percent margin, while adjusted income from operations came to $1.427 billion, a 62 percent margin. Cash from operations reached $1.205 billion, and the company ended the quarter holding $10.4 billion in cash, cash equivalents and U.S. Treasury securities, giving it substantial room to keep investing in sales staff and computing capacity without raising outside capital.

What comes next

For the fourth quarter, Palantir guided to revenue of $2.649 billion to $2.653 billion, above the roughly $2.46 billion analysts had modeled, and to adjusted income from operations of $1.640 billion to $1.644 billion. Executives said on the earnings call that they expect government revenue growth to continue alongside commercial expansion, rather than one segment substituting for the other, as federal agencies including the Internal Revenue Service and State Department have signed new work in recent quarters alongside the Pentagon, long Palantir's largest customer.

The quarter will be scrutinized by rivals and customers alike as a signal of how durable enterprise demand for applied AI software is proving to be, at a moment when some investors have grown warier of how quickly AI-related capital spending across the technology sector will generate matching revenue. Palantir's next scheduled test comes when it reports fourth-quarter and full-year results early next year, a period in which the company will need to show that bookings growth, not just revenue recognized from existing contracts, is reaccelerating to justify its valuation. Analysts covering the stock remain split on whether the quarter's slower bookings growth was a one-off tied to contract timing or the start of a more durable deceleration in new business.