Once the company releases its third quarter report, it could be a pivotal moment for them.
Palantir Technologies’ stock has shown some calming performances lately. It was one of the top gainers in the S&P 500 last year, surging by an impressive 340%. However, there are growing concerns about its high valuation. The ongoing federal government shutdown, which seems to have no resolution in sight at this writing, might further complicate things for the company.
Despite these challenges, Palantir shares have outperformed the market, rising 33% over the past three months and around 136% within the last year. With the third quarter earnings report around a month away, one wonders if investors will still be interested in buying Palantir shares.
What Palantir Does
Palantir is quite unique in its domain. As its management puts it, it was founded two decades ago to address a technology gap that struggled to manage complex problems efficiently.
Essentially, Palantir is a data mining company that harnesses artificial intelligence to gather and analyze information from countless sources. For instance, military and intelligence agencies utilize satellite data worldwide to gain insights into adversaries, helping them make informed decisions using real-time data in critical situations.
The company has had a long-standing relationship with the U.S. government and is notably recognized for providing intelligence that assisted in locating Osama bin Laden.
In 2022, Palantir introduced an artificial intelligence platform (AIP) that enables both military and commercial customers to engage with data and operations through large-scale language models. This platform leverages AI to suggest process improvements, offer task guidance, and interact with other AI systems to execute various functions.
Through initiatives like Boot Camps, Palantir allows potential clients to experience the platform’s real-world applications and its operational impact. This strategy has proven to be successful, with the company closing 157 transactions in the second quarter—66 of which were valued over $5 million, and 42 exceeding $10 million. Palantir generated $306 million in revenue just from the rapidly growing U.S. commercial segment, marking a 93% increase from the previous year. Revenue from U.S. government contracts also rose by 53%, totaling $426 million.
Anticipation for Third Quarter Revenue
The upcoming revenue report from Palantir will reveal whether the company can meet or surpass the growth seen in the second quarter.
Palantir currently has striking valuations, with a price-to-earnings ratio of 623, a forward P/E of 217, and a price-to-sales ratio of 137. It’s hard to imagine any figures from the third quarter that could justify these ratios—there’s more of a focus on momentum and future prospects rather than current metrics. To invest in Palantir, you really need to believe in its potential for growth, perhaps being less concerned with the numbers.
That said, there’s considerable anxiety surrounding Palantir as the quarterly results loom. According to Yahoo Finance, analysts estimate third quarter revenues to be $1.08 billion—a 50% increase year-over-year, but only an 8% rise sequentially. Personally, I think that might not be enough to sustain Palantir’s stock performance.
Management’s guidance aligns with market expectations. They project annual revenues to fall between $4.142 billion and $4.15 billion, roughly 44% higher than in 2024. Yet, the question remains—are these figures adequate to satisfy the lofty expectations of institutional investors? I find myself skeptical.
Conclusion
Palantir is undeniably a solid company. Its products are unmatched, and its commercial sector is rapidly expanding, especially with the current political initiative to streamline the federal workforce and create AI agents to take on basic job functions.
However, the stock has faced some unease following an August report from short-seller Citron Research, labeling Palantir’s valuation as “detached from fundamentals” and suggesting a price target of $40 per share. While I feel that assessment might be exaggerated, I do concur that relying solely on valuations is a risky approach for assessing stocks like Palantir.
In my view, Palantir needs to deliver a strong third quarter report to keep things rolling. Recent momentum is starting to wane, and any hint of weakness could lend credence to Citron’s caution. I still consider Palantir a worthwhile investment, but potential buyers should certainly keep a close eye on the upcoming earnings report.
