Palantir was the top stock on the S&P 500 last year, returning 341%, and its up 64% this year.
While most AI and big tech stocks have fallen back this year as markets have corrected, Palantir Technologies (NASDAQ:) has been able to defy gravity.
Palantir was the top performing stock on the S&P 500 last year, returning 341% in 2024. The year before, the stock price jumped 167%.
This year, while other AI high-fliers like NVIDIA (NASDAQ:) and Broadcom (NASDAQ:) are in negative territory, Palantir has continued to surge, rising another 65% and making it, once again, the top stock on the S&P 500.
Its ridiculously astronomical valuation has been able to defy gravity, trading at 651 times earnings. That’s typically not sustainable even for the greatest growth companies – which leads us to Palantir’s first quarter earnings, reported Monday after the market closed.
42% of Revenue From U.S. Government
Palantir, which provides software for institutional clients that helps them gather data and develop AI models, posted robust first quarter results.
Revenue soared 39% year-over-year and 7% from the previous quarter to $884 million. That was better than the $863 million that analysts expected.
Net income rose 24% to $214 million, while earnings doubled to 8 cents per share from 4 cents per share the same quarter a year ago. On an adjusted basis, earnings were 13 cents per share, which was in line with analysts’ expectations.
Palantir’s customers are mostly corporations and the government, but the latter has been driving the bus.
Palantir has been a major beneficiary of government contracts. In the first quarter, about 42% of its revenue came from the U.S. government, as it generated $373 million from the government – a 45% increase year-over-year. U.S. commercial revenue was also strong, rising 71% to $255 million. It was also the company’s highest quarter of U.S. commercial total contract value of $810 million, a 183% increase.
Overall, U.S. revenue climbed 55% in the quarter to $673 million. The firm closed 139 deals of at least $1 million, 51 deals of at least $5 million, and 31 deals of at least $10 million. Further, its customer count grew 39% year-over-year and 8% from the previous quarter.
Guidance Is Raised, Yet Stock Price Drops
The strong Q1 was punctuated by a rosy outlook, as Palantir raised its guidance for the full year.
Just one quarter in, it boosted its revenue expectations to a range of $3.890 billion to $3.902 billion, up from $3.741 billion to $3.757 billion. That would be a 36% increase for the full year.
In addition, it is lifting its U.S. commercial revenue guidance to in excess of $1.178 billion, representing a growth rate of at least 68%. The previous guidance was $1.079 billion.
Palantir also increased its adjusted income from operations guidance to between $1.711 billion and $1.723 billion. That’s up significantly from the previous guidance of $1.551 billion to $1.567 billion. It expects net income in each quarter.
Finally, it raised its adjusted free cash flow guidance to between $1.6 billion and $1.8 billion, up from $1.5 billion to $1.7 billion.
This type of optimism is usually a recipe for a stock market rally, but that was not the case on Tuesday, as Palantir opened 9% lower at around $112 per share. So why was it down?
Too Hot To Handle?
Even more confounding is the fact that several analysts raised Palantir’s price target after earnings. Deutsche Bank increased it by $30 per share, Wedbush by $20 per share, and Morgan Stanley by $8 to name a few.
It really comes down to Palantir’s valuation. Three years of ridiculous, meteoric growth has pushed its P/E ratio to 651, which is 72% higher than what it was at the start of the year when it was at 378 – which is also ridiculously high.
Analysts, overall, don’t see this as sustainable, as eventually earnings will settle. It has a median price target of $96 per share, which would be down about 13% from the current price.
Today’s selloff is likely an acknowledgement by investors that this could be the top for a while, given the high valuation, and they are cashing out. Long term, Palantir is a fantastic opportunity, but things need to cool down a bit.
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