Palantir had the best quarter in history. What's Wall Street worried about?
Analysts are alarmed by Palantir's heavy reliance on government contracts, including against the backdrop of the shutdown, as well as the company's high valuation
Military and civilian AI developer Palantir has posted the best financial results in its history. Revenues rose 63%, beating expectations and raising its full-year guidance. Wall Street analysts are skeptical of the company, whose shares have already risen more than 170% since the beginning of the year.
Details
Palantir released its best-ever financial results on Nov. 3, MarketWatch reports . The developer's revenue in the third quarter reached $1.18 billion for the first time, up 63% from a year earlier. Wall Street's consensus forecast was for $1.09 billion, Yahoo Finance reports. Adjusted EPS rose 110% to a record $0.21. Analysts had expected $0.17.
The main driver of growth was the U.S. operations, with revenue from government contracts jumping 52% to $486 million (Wall Street had forecast $471 million) and sales of civilian commercial solutions in the Americas rising 121% year-over-year to $397 million versus an expected $342 million.
Palantir is prioritizing the domestic market, which now accounts for 75% of its total revenue, Ryan Taylor, the company's director of revenue and legal affairs, explained to MarketWatch.
Palantir said it expects revenue slightly above $1.3 billion in the current quarter, while analysts surveyed by Bloomberg had forecast about $1.2 billion. Palantir expects adjusted operating income in the range of $695 million to $699 million - well above the expected $575 million, Yahoo Finance noted. The company also raised its full-year revenue forecast to $4.4 billion from a previously reported $4.15 billion.
After the report was published on the evening of Nov. 3, Palantir's securities rose as much as 7% at one point in extended trading, but then lost momentum and moved to the downside.
What worries Wall Street but not retail investors
Only 24% of analysts tracked by FactSet now recommend buying Palantir stock or have an equivalent rating, MarketWatch writes. Analysts are alarmed by Palantir's high reliance on government contracts, including amid the shutdown, as well as the company's high valuation. As of Oct. 31, Palantir shares were trading at a multiple of 85 on projected revenue for the next 12 months, Bloomberg writes, explaining that this makes the AI developer the most expensive company in the S&P 500 index. The forward P/E ratio (the ratio of capitalization to expected consolidated earnings this year) now stands at 253, one of the highest in the sector, according to FactSet data.
Nevertheless, Palantir relies on a loyal base of retail investors. CEO Alex Karp cited that as the factor that sets the company apart from other software players. "The people in America today who are most excited about our results are ordinary Americans," Karp said in comments to MarketWatch. In a letter to shareholders, he emphasized that "Palantir has enabled retail investors to generate returns that were previously available only to the most successful venture capitalists in Palo Alto."
Before the report was released, Citi analyst Tyler Radkey questioned whether the company would be able to meet the high expectations set last quarter, when Palantir's quarterly revenue topped $1 billion for the first time. Palantir's exceeding its earnings forecast was a strong signal that demand for its products remains strong, MarketWatch states.
This article was AI-translated and verified by a human editor
