Palantir Earnings: U.S. Commercial Strength and Margin Expansion Mark a Robust Quarter

Key Morningstar Metrics for Palantir

• Fair Value Estimate: $13.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High

What We Thought of Palantir’s Earnings

We are raising our fair value estimate for Palantir PLTR to $13 from $11 after the firm reported a strong quarter, with profitability well ahead of our estimates. Commercial deals and sales led the way, as interest in Palantir’s AI solutions continues to provide an uplift. As more customer dollars are dedicated to spending on AI, we believe that Palantir, a leader in the AI platform space, stands to benefit.

We are optimistic about Palantir’s opportunities going forward, especially as AI-related spending is only projected to grow. At the same time, however, we remain unable to rationalize the firm’s market valuation. With shares up sharply after the earnings report, we continue to view them as overvalued even after raising our fair value estimate.

Palantir’s third-quarter sales clocked in at $558 million, up 17% year over year and in line with our above-consensus estimate of $560 million. U.S. commercial sales continue to be a bright spot, expanding 33% year over year and 13% sequentially to $116 million. Deals from U.S. customers also experienced marked growth, more than doubling from a year ago. From a forward-looking perspective, Palantir’s billings metric grew to $550 million, up 8% year over year. With the recent surge in AI-related projects and workflows, we attribute the U.S. commercial growth and billings expansion to customer spending on Palantir’s AI Platform, AIP.

Palantir’s adjusted operating margins came in at 29%, ahead of our 25% estimate. We believe the firm’s laser focus on profitability is timely as investors key in on margins in a tough macro environment. As of the September quarter, Palantir is eligible to be included in the S&P 500. We view this as good news for shareholders, as it would lead to more institutional ownership via passive stock-index funds and institutional investors benchmarked to the S&P 500.