Palantir earnings: AI leadership intact; valuation still causes heartburn
Our view of Palantir Technologies.
Mentioned: Palantir Technologies Inc Ordinary Shares - Class A (PLTR)
Key Morningstar metrics for Palantir Technologies
- Fair Value Estimate: $135
- Morningstar Rating: ★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Very High
What we thought of Palantir Technologies’ earnings
Palantir PLTR is down slightly in after-hours trading after exceeding management’s forecast for nearly all publicized metrics. The rule of 40—the sum of revenue growth and operating margins—reached 114%, an all-time high. US commercial sales grew 121% year over year, up from 92% in the previous quarter.
Why it matters: We are observing a new trend where Palantir’s valuation multiple limits market enthusiasm, despite the company’s rapid growth trajectory. We believe Palantir and its ontological framework are leaders in artificial intelligence, but it faces a valuation barrier.
- Palantir trades at roughly 120 times revenue, a 350% premium over other AI companies. We believe Palantir requires gradual multiple compression and an average annual growth rate of 45% (90th percentile or above for the software universe) over five years to justify investing at these levels. The risk/reward is poor.
- Our analysis of previous technological innovators, dating back to the 1970s, shows it is rare for a company to justify this valuation. Palantir may defy the odds, given its top-of-class automated decisioning technologies, but it must grow (and then some) for investors to earn a return from current prices.
The bottom line: We maintain our narrow moat rating and raise our fair value estimate to $135 from $115, driven by Palantir’s largest guidance increase in history and our growing confidence that its ontological framework has no clear competitors.
- We believe Palantir is the top software for operationalizing AI, but chasing momentum here is risky. Current pricing leaves no room for error.
Key stats: Palantir’s US commercial growth far exceeded that of the US government (52%) and international segments (32%). Its net dollar retention, which includes customer expansions and upsells, stands at 134%—the best in our software universe. We are impressed.
