Key Insights
-
Palantir’s revenue has seen a sharp rise in the third quarter.
-
However, there’s a possibility that earnings might slow down. This is something we’ve observed with other fast-growing data platform companies.
-
A notable dip in Palantir’s earnings growth could unsettle investors.
After making a significant advancement in 2025, Palantir Technologies (NASDAQ: PLTR) started 2026 on a low note, with its stock price dropping around 7% since the year’s outset.
Currently, investors appear to be skeptical about the company’s exceptionally high valuation. AI providers that utilize data and analytics have built expectations around sustained, substantial growth. But if there are signs of a considerable economic downturn, stock prices could face a sharp decline.
Impressive Growth
Palantir has demonstrated remarkable growth so far, with more clients adopting its Artificial Intelligence Platform (AIP) to improve their operations. In the fiscal third quarter, sales surged by 63% year-over-year, marking an acceleration from 48% growth in the second quarter.
The company’s increasing U.S. commercial revenue plays a crucial role in its accelerating performance as it reduces reliance on government contracts. U.S. commercial revenue shot up by 121% year-over-year in the third quarter, compared to 93% in the second quarter, as stated by Palantir.
“These results clearly show the transformative potential of using AIP to boost AI utilization,” noted Palantir co-founder and CEO Alex Karp during the earnings call for the third quarter.
Lessons from Snowflake
While these results are exciting, Palantir isn’t the only data platform experiencing noteworthy success. For instance, Snowflake (NYSE: SNOW), which follows a similar business model, saw growth rates that exceeded even Palantir’s at one point. Back in fiscal 2021’s third quarter, Snowflake’s product revenue climbed by 115% year-over-year to $148.5 million. Yet, such growth isn’t always sustainable, as evidenced by its recent figures; a notable slowdown was seen when its fiscal 2026 third-quarter revenue grew by just 29% to $1.16 billion.
Over the past five years, Snowflake’s revenue growth was remarkable, with third-quarter revenue increasing almost eightfold during that span. But as growth tempered, investor expectations shifted, resulting in a 24% decline in stock price over five years, in contrast to an 81% increase in the S&P 500.
It’s worth noting that Palantir is a different type of growth stock, presenting a revenue growth rate in the 60s while nearing $1.2 billion in revenue. Achieving high growth from such a large base is a significant accomplishment.
However, investors should remain vigilant. If Palantir’s growth rate starts to flatten, reluctance to pay high valuations could also emerge, which could reflect on stock evaluations.
That being said, if any substantial slowdown arises, it’s unlikely to occur in the fiscal fourth quarter. The company’s guidance suggests year-over-year growth of 60% or more, and given its track record of exceeding expectations, the actual growth rate may even surpass that of the third quarter.
Valuation Concerns
The pressing question, once Palantir’s revenue growth decelerates, is whether the stock can still validate its current valuation. Presently, high-tech stocks usually carry a high forward price-to-earnings ratio, indicating that Palantir’s stock might be anticipating robust growth and significant profit increases over time. For Palantir to yield acceptable returns from its valuation, it likely would need to see earnings grow at a compounded average rate of 30% over the next five years, accelerating even further.
Nonetheless, I admire Palantir’s business model. Its performance is remarkable and certainly worth studying. Still, the stock’s current valuation allows little room for error, and I wouldn’t be shocked if it dipped further this year. It’s hard to predict short-term stock price behaviors, but I wouldn’t label buying at this valuation as anything less than risky.
Considering Snowflake Stock?
Before investing in Snowflake stock, keep this in mind: Our analyst team at **Motley Fool Stock Advisor** has pinpointed what they believe are the best stocks for investment, and Snowflake doesn’t feature on that list. There are ten other stocks that they believe could offer better returns in the upcoming years.
When reviewing historical recommendations, investing $1,000 in Netflix when it was recommended would have turned into $462,174, and the same amount in Nvidia would be $1,143,099 today.
The average total return from the Stock Advisor program is 946%, contrasting sharply with the S&P 500’s 196% return—significant outperformance indeed.
Please note that the views expressed here are solely those of the writer and do not necessarily reflect those of Nasdaq, Inc.
