Palantir Stock Jumps to a New High on Earnings. What Got the Market So Excited

Dow Jones02-04

Palantir Technologies stock closed at its highest level on record after the company posted a big beat with its fourth-quarter results.

Earnings per share were up annually by 75% to 14 cents, compared with Wall Street’s consensus estimate of 11 cents, according to FactSet. Revenue for the quarter reached $828 million, above expectations for $776 million, and up 36% on the year. 

Palantir stock ended the day 24% higher at $103.83, surpassing Monday’s record of $83.74, according to Dow Jones Market Data. Meanwhile, the S&P 500 finished the day up 0.7%, the Dow Jones Industrial Average rose by 0.3%, and the Nasdaq Composite climbed 1.4%.

Always ebullient, Palantir CEO Alex Karp opened his portion of the earnings call on Monday afternoon by saying, “Welcome to our Palantir revolution, otherwise known as our earnings call. There really is a lot of debate with these numbers if you even should have an earnings call.” Nonetheless, the call proceeded as planned.

Commercial revenue grew by 31% to $372 million from 2023, and government revenue grew by 40% to $455 million.

While Palantir is known primarily as a contractor to defense and intelligence agencies, its U.S. commercial business is pushing growth higher. Revenue was up 64% on the year for this end market and the backlog almost doubled. Total bookings were up 134%.

U.S. government revenue grew by 45% from 2023.

Palantir’s revenue outlook for the first quarter came in well above expectations at $858 million to $862 million, up 36% from 2024 at the midpoint versus a $799 million analysts’ estimate. 

A tailwind for Palantir is one that may accrue to many business software companies. “I think one of the obvious lessons of DeepSeek R1, is something that we’ve been saying for the last two years, which is that the models are commoditizing,” Karp said on the call. “They’re getting better across both closed and open, but they’re also getting more similar, and the price of inference is dropping like a rock.”

Palantir believes that it is uniquely situated to benefit from a new commoditized AI cost structure. “With the proliferation of AI models, the raw AI labor supply is exploding,” said chief revenue officer Ryan Taylor. “While everyone else is focused on the model supply side, we’re transforming AI into a measurable stream of high-value finished goods and services. The result? The rapid emergence of quantified exceptionalism for organizations able to unlock the potential of these commoditized models.”

Heading into the earnings report, Wall Street analysts had mostly taken a dim view of Palantir’s stock price, with an average target price of $51, ranging from $11 to $90, according to FactSet. Most analysts have the equivalent of a Hold or Sell rating on the stock; out of 18 analysts, there are only two Buy ratings.

“Analysts cannot get a good handle on what the total addressable market is,” Morningstar analyst Mark Giarelli says. “Theoretically Palantir can help almost any company in the world that utilizes data, but what will actually materialize is ambiguous and anyone’s best guess.”

With a price-to-earnings ratio of 173 for the next 12 months before earnings, Palantir has to keep proving analysts wrong, something it has done for over four years. In the 18 reporting periods since it became public, Palantir has beaten the analyst consensus for sales in all but one quarter, by an average of 2.7% per period. 

Most analysts may take a skeptical view of Palantir’s pricing but they are also largely in agreement that it’s a fast-growing company with strong growth prospects.

Morningstar’s Giarelli, who has a Buy rating and a price target of $79 remains a fan of the stock. “I am quite bullish on Palantir’s future and my base case is that this company will have a growth profile similar to Salesforce in the late 2010s,” he told Barron’s. “This aggressive growth profile is essentially what the market is pricing in at this time, and I don’t think the market is wrong.”

Over the last 20 years, Salesforce revenue has grown at a 34% annualized rate. Like Palantir, it is also a frequent beater of analyst consensus.

Palantir began as a government contractor to help agencies make sense of a flood of data, but it now has a healthy commercial business, making up almost half of companywide revenue in the last 12 months.

Companies, especially large ones, produce a ton of data, and have to make sense of it to understand their businesses better and improve productivity. Some of these large companies have multiple fragmented IT systems, the result of decisions made years ago. 

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